Financial systems sound, despite ongoing housing concerns: RBNZ
(11 May 2016 – New Zealand) According to the latest Financial Stability Report released by New Zealand’s central bank, the country’s financial system is sound, however house price inflation and low dairy prices remain key risks.
Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler said that overall, the financial system remained robust and continued to function effectively, although the last six months saw an increase in risks to the financial stability outlook.
"Dairy prices remain low with global dairy supply continuing to increase. Many farmers now face a third season of negative cash flow with heavy demand for working capital," he said.
"Imbalances in the housing market are increasing with house price inflation lifting again in Auckland, after cooling in late 2015 and early 2016 following new restrictions in investor loan-to-value ratios and government measures introduced in October.
Housing demand has sharply driven up prices across the country, although outside of Auckland, prices were generally lower relative to incomes.
"The Bank remains concerned that a future sharp slowdown could challenge financial stability given the large exposure of the banking system to the Auckland housing market.
Wheeler said further efforts to reduce the imbalance between housing demand and supply in Auckland remained essential.
"This includes measures such as decreasing impediments to densification and greenfield development and addressing infrastructure and other constraints to increased housing supply."
The six-monthly review assesses the health of the banks and other deposit-taking institutions, the insurance sector and the payments system in New Zealand, and highlights potential risk areas.
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