Major New Zealand banks report no direct exposure to any European sovereign debt, Reserve Bank says

By Gareth Vaughan

The Reserve Bank says New Zealand's major banks have disclosed no direct exposure to the sovereign debt of troubled European nations and their Australian parent banks have less than 2% of their assets exposed to the Eurozone.

The European sovereign debt crisis, and its real and potential impact on the New Zealand banking system through the cost and availability of debt funding, featured heavily in the Reserve Bank's latest Financial Stability Report.

However, the central bank played down New Zealand banks' direct exposure to Europe's troubled debt markets.

"The major New Zealand banks report no direct exposure to the sovereign debt of any European nation," the Reserve Bank said. "Furthermore, New Zealand banks have very little in the way of lending or asset exposures to European borrowers."

Asked by interest.co.nz whether the Reserve Bank had knowledge of, or any concerns about, the exposure of the Australian parents of the major New Zealand banks  - ANZ, ASB, BNZ and Westpac - to European sovereign debt, a spokeswoman referred to a recent speech by John Laker, the chairman of the Australian Prudential Regulation Authority.

"The Australian banking system has only a limited direct exposure to the European countries currently under the most severe financial pressure - Greece, Portugal, Ireland, Italy and Spain (the so-called PIIGS countries)," said Laker.

"Exposure to the broader euro area is larger, although still less than 2% of banking system assets. The relatively small size of these European exposures suggests that any direct impact from pressures on one of the troubled European countries would be minimal."

In August a spokeswoman from National Australia Bank, BNZ's parent, told interest.co.nz NAB no longer had exposure to about A$12.8 billion worth of Italian government bonds it had taken as collateral under a short-term funding arrangement with another un-named bank.

The Reserve Bank itself, meanwhile, disclosed in its annual report last month that it had no PIIGS debt of its own and had increased its holdings of German, Austrian and Dutch securities and slashed its holdings of French and United States securities.

In its Financial Stability Report the central bank did say, however, that if turmoil in Europe leads to large declines in commodity prices or weakness in the domestic economy, "a further round of asset quality deterioration could be expected" at New Zealand's major banks.

Meanwhile, the central bank noted that, if access to offshore debt markets becomes "even more difficult," it has the capacity to provide temporary funding to the local banking system through its liquidity facilities, which  "worked well" during 2008-09 when offshore debt markets were frozen for several months.

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