New Zealand banks are likely to be hit by even higher provisions for non-performing loans as the economy weakens, but they are generally well-placed to absorb these losses, the Reserve Bank says. In its half-yearly Financial Stability Report issued today - the first since the global financial market turmoil of the past quarter - the central bank reiterates that New Zealand's financial and payments system has held up well in the face of "extreme disorder" across international markets. "While we are far from seeing the final impact of the financial and economic disruption, New Zealand's banks - and the Australian parents of the majors - are well positioned to withstand the economic downturn," Governor Alan Bollard said. The level of impaired loans held by banks - where borrowers are having apparent difficulties meeting the loan terms and collateral available is insufficient to cover the loan - had increased sharply since 2007, the Reserve Bank says. However, by historical standards, the level of impaired loans held by New Zealand banks remained low. To put them into perspective, only $1 of every $200 lent out by New Zealand banks - or about 0.5 per cent of their total assets - is categorised as impaired. "Impairments remain much lower than in the early 1990s and significant further deterioration would be required to seriously threaten the capital position of the banks," the Reserve Bank says. Furthermore, banks are not necessarily moving to immediate foreclosure when borrowers cannot meet scheduled loan repayments. Instead, they are attempting to renegotiate loan and repayment terms with customers. Elsewhere, the Financial Stability Report notes that concerted government and central bank measures around the world had contributed to some improvement in financial market conditions in recent weeks. There was no hint of any new measures being rolled out in New Zealand - over and above those announced in recent months. So far, New Zealand has taken several steps to ease the impact of the credit crisis, including introducing a retail deposit guarantee scheme in October; followed by a wholesale guaerantee scheme last month; proposing new standards for banks to better manage their funding and liquidity; and adding residential-backed mortgage securities to the range of securities accepted in the Reserve Bank's domestic market operations.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.