(16 November 2015 – New Zealand) In its six-monthly update, the Reserve Bank of New Zealand (RBNZ) has indicated that the country’s banking system remains in good health, even as a heavily indebted dairy sector and continued heat in the Auckland property market pose greater risks to the lenders.
A combination of a dive in dairy prices and a surging housing market in Auckland have increased lending risks, the report has found. Further, volatility in the region, and in particular doubts on the growth of China have placed increased pressure on the economy.
“Banks hold strong capital land liquidity buffers and have maintained their profitability with further reductions in cost-to-income ratios,” deputy governor Grant Spencer said in a statement.
“Lending growth to households and businesses has picked up and is being funded mainly through higher domestic deposits.”
The Reserve Bank has been concerned about country's rapid house price appreciation for a couple of years as low interest rates, rising inbound migration, and a shortage of supply in Auckland and Christchurch drove activity in the nation's two biggest cities.
The RBNZ has stated that it would like the country's five biggest lenders to the dairy sector – ASB Bank, ANZ Bank New Zealand, Bank of New Zealand, Westpac New Zealand and Rabobank New Zealand – to stress test their portfolios.
The central bank plans to review banks’ minimum capital requirements in the coming year, in line with potential changes to the Basel capital adequacy framework the report said.