The likely extent of provisioning by banks for loans in the Christchurch area looks ‘handle-able’, with the process so far not throwing up any surprises the Reserve Bank would be worried about, Governor Alan Bollard said today.
Appearing before Parliament’s Finance and Expenditure Committee after announcing a cut in the Official Cash Rate this morning by 50 basis points to 2.5%, Bollard said banks had begun to send through early estimates for provisioning of bad loans following the devastating earthquake on February 22.
“They are now going through a provisioning process, looking at the losses that are there around the city and what that might mean for their balance sheets. At the minute that’s not throwing up surprises of the sort that we would be worried about,” Bollard said.
“After the September earthquake the banks made provisions on likely failures. Generally speaking those weren’t called on as much as expected and the news from there was fairly good. Now this earthquake is clearly a different story and much worse,” he said.
“The banks are currently going through re-estimating the possibility of loan impairments and provisioning for it. I think they feel the risks aren’t so much in the residential mortgage area, they’re more in the small business area.
Looking at what estimates were in from some of the banks so far, the provisioning looked to be significantly less than 1% of lending banks had into the area, which was around NZ$30 billion.
“So on that basis that looks to be very well ‘handle-able’ by the banks, without causing any particular stress,” Bollard said.
The Reserve Bank was also comfortable with where the banks were in a prudential regulation sense following the quake, Bollard said.