RBNZ warns of rising financial risks, but says system remains resilient
The Reserve Bank of New Zealand (RBNZ) has warned that risks to the country’s financial system have grown over the past six months, although New Zealand’s institutions remain well placed to weather global and domestic challenges.
RBNZ Governor Christian Hawkesby said financial stability was critical to ensuring New Zealanders could safely save, borrow and manage financial risks. “While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy,” he said.
Global tensions and local pressures weigh on outlook
Geopolitical tensions have intensified, particularly following the United States’ introduction of sweeping tariffs on imported goods from several nations, including New Zealand. The RBNZ noted that these developments had increased financial market volatility and now pose a material risk to global economic activity.
Domestically, the central bank acknowledged that economic activity remained subdued. Factors such as previously high interest rates, rising unemployment and a weak housing market were continuing to put pressure on demand. However, the situation was being partially offset by lower borrowing costs and strong agricultural export prices, which were supporting debt repayment and broader financial stability.
Banking and insurance sectors showing strength
New Zealand’s banks were described as well capitalised and highly liquid, which the RBNZ believed would allow it to maintain credit flows even if economic conditions deteriorated. Profitability remained strong, and the central bank expected non-performing loans to decline as mortgage rates continued to adjust downward.
The insurance sector had also shown signs of stability. A recent RBNZ stress test highlighted improved resilience among general insurers, although it also reaffirmed the ongoing threat posed by extreme seismic events.
Regulatory reform set to enhance protections
The RBNZ reaffirmed its commitment to reform, with the implementation of the Deposit Takers Act 2023 continuing on schedule. The Governor said the release of the Terms of Reference for the review of key bank capital settings would ensure New Zealand’s financial system remained robust and fit for purpose. “We will engage leading international experts to inform and challenge our review,” he said.
A major milestone is approaching with the Depositor Compensation Scheme due to come into force on 1 July 2025. This will protect depositors’ funds if a deposit taker fails – a move the RBNZ said would boost trust and competition across the financial system.