Reserve Bank: Financial Stability Report, May 2005

Financial Stability Report, May 2005

The Reserve Bank today released its Financial Stability Report, a twice-yearly report that assesses the robustness of the New Zealand financial system.

Reserve Bank Governor Alan Bollard commented: "The New Zealand financial system, overall, is well placed to weather a possible slowdown in the economy."

Dr Bollard said that New Zealand's major banks had sound balance sheets, very low levels of problem loans, and had been recording strong earnings. The Australian parents of those banks are similarly placed.

Dr Bollard added that "finance companies have grown rapidly, including in some higher risk markets. They offer generally higher returns to investors, but are more exposed when the economy slows. As such they currently represent a greater risk. But, despite their rapid growth, finance companies remain only a small part of the financial system.

Dr Bollard added that while the financial system as a whole was in good shape, the risks to investors, households and some firms had been increasing. Household and farm sector indebtedness has continued to increase.

"These developments could result in some financial strains if the economy slows, the boom in agricultural export prices does not last, or the New Zealand dollar appreciates further," he said.

Another possible development Dr Bollard noted was banks seeking to maintain recent years' strong growth in lending and earnings by taking on higher risk business.

"The Reserve Bank will be watching to ensure that the banks maintain appropriate credit standards, and that they have adequate capital to support the risks they take," Dr Bollard said.

You can view the Financial Stability Report at the following link: http://www.rbnz.govt.nz/finstab/fsreport/index.html

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