UPDATE 1-New Zealand's central bank orders lenders to pay no dividends or redeem capital notes

(Adds details)

April 2 (Reuters) - New Zealand’s central bank ordered banks on Thursday to stop paying dividends or redeeming capital notes given widespread economic uncertainty caused by the coronavirus pandemic.

The payment restrictions take effect immediately and were issued to all locally incorporated banks. They will remain in place until further notice, the Reserve Bank of New Zealand said in a statement.

“This initiative further supports the stability of the financial system by maintaining higher levels of capital during the period of falling economic activity resulting from the COVID-19 pandemic,” Deputy Governor Geoff Bascand said in a statement.

The move follows similar measures taken globally, as the European Central Bank asked banks last week to skip dividend payments and share buybacks until October.

The local unit of Australia and New Zealand Banking Group said in a separate statement that it will not redeem NZ$500 million ($295.80 million) in capital notes as per RBNZ’s directive.

RBNZ also introduced a new Term Lending Facility (TLF) that would ensure access to funding for banks at low interest rates for up to three years, a longer duration than the bank’s other liquidity facilities.

The facility will support the government’s business finance guarantee scheme announced last week.

The central bank cut interest rates by 75 basis points last month and launched a quantitative easing programme as it looked to ease the pressure on the economy from the impact of COVID-19.

New Zealand’s financial system remains sound, with strong capital and liquidity buffers, Governor Adrian Orr said in the statement.

“We are confident that the financial system is well placed to respond to the impacts of coronavirus,” Orr said.

$1 = 1.6903 New Zealand dollars Reporting by Nikhil Kurian Nainan in Bengaluru; writing by Praveen Menon; Editing by Chris Reese and Tom Brown