IMF highlights vulnerable points for NZ banks
(16 January 2013 – New Zealand) In a working paper on the resilience of the Kiwi banking system, New Zealand’s well-capitalised banks could most likely withstand a major blow to one of the two major lending markets, but not both, according to the International Monetary Fund (IMF).
The international economic organisation found ASB, ANZ, Bank of New Zealand (BNZ) and Westpac held high-quality capital well above regulatory requirements, equivalent to about three times that of their Canadian counterparts.
The capital would help the banks withstand a blow to one of their lending markets, but a fiscal blow would likely come from multiple fronts where the banks look vulnerable.
The IMF report says that given the large size of the four systemically important banks in New Zealand with similar business models, careful attention needs to be paid to their vulnerabilities and resilience to shocks.
'Any distress in one of the four banks could have significant repercussions for the entire financial system and, in turn, the real economy in New Zealand.'
The working paper said the 'too-big-to-fail' institutions were vulnerable to a rapid rise in mortgage rates combined with a spike in unemployment, which would put pressure on the ability of heavily indebted households to service their debts.
In addition, the country's major banks were also vulnerable to a large fall in commodity prices which would impact on farm loans.
The IMF recommended the Reserve Bank of New Zealand (RBNZ) consider implementing prudential policy measures such as lifting capital requirements among major lenders.
This would reduce fiscal risks in times of market uncertainty by maintaining bank asset quality and keeping access to international funding markets open.
The capital would help the banks withstand a blow to one of their lending markets, but a fiscal blow would likely come from multiple fronts where the banks look vulnerable.
The IMF report says that given the large size of the four systemically important banks in New Zealand with similar business models, careful attention needs to be paid to their vulnerabilities and resilience to shocks.
'Any distress in one of the four banks could have significant repercussions for the entire financial system and, in turn, the real economy in New Zealand.'
The working paper said the 'too-big-to-fail' institutions were vulnerable to a rapid rise in mortgage rates combined with a spike in unemployment, which would put pressure on the ability of heavily indebted households to service their debts.
In addition, the country's major banks were also vulnerable to a large fall in commodity prices which would impact on farm loans.
The IMF recommended the Reserve Bank of New Zealand (RBNZ) consider implementing prudential policy measures such as lifting capital requirements among major lenders.
This would reduce fiscal risks in times of market uncertainty by maintaining bank asset quality and keeping access to international funding markets open.
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