New Zealand’s financial system is well placed to handle the higher interest rate environment and international financial disruptions, Governor Adrian Orr says in releasing the May 2023 Financial Stability Report.
Global inflation is persisting at levels well above central banks’ policy targets. Although central banks have slowed the pace of tightening recently, the full extent of the impact of previous tightening is still to be seen.
New Zealand households are facing increased debt servicing costs as their borrowing reprices to higher interest rates, Mr Orr says.
“To date there have been limited signs of distress in banks’ lending portfolios, with only a small share of borrowers falling behind on their payments. This reflects the ongoing strength of the labour market and that borrowers have been able to adjust their spending or use previous savings and repayment buffers.”
“That said, cash flow pressures among households and in some business sectors are growing.”
Deputy Governor Christian Hawkesby says house prices have continued to decline and are closer to being at sustainable levels than has been the case in recent years.
“We recently announced we are consulting on easing our LVR speed limits from historically tight settings, reflecting our assessment that current lending activity presents less risk to financial stability,” Mr Hawkesby says.
The extreme weather events in the North Island earlier this year have caused significant economic disruption and physical damage to affected households, businesses and property. New Zealand’s financial system as a whole has been resilient to these events, and institutions continue to work with and support affected customers. However, this highlights the ongoing need for work to better understand and manage, weather and climate related risks.
The New Zealand banking system’s capital and liquidity positions are strong, with profitability and asset quality remaining high. New Zealand’s banks are not materially exposed to the same interest rate risks which have contributed to some recent bank failures in the United States. Overall, New Zealand’s financial institutions are well positioned to continue to take a long-term perspective and support their customers through the current economic challenges.
