Reserve Bank Governor Christian Hawkesby. Photo: RNZ / Dom Thomas
The Reserve Bank's Financial Stability Report indicates risks remain heightened.
Reserve Bank Governor Christian Hawkesby said financial stability risks were higher than in recent years due to global uncertainty and underperformance in parts of the New Zealand economy, though banks were well placed to manage through.
- Economy poses ongoing challenging conditions for businesses.
- Trade tensions could slow economic growth in key markets.
- Weaker demand is reducing profits in some business sectors.
- Reinsurers make insuring severe events possible - reduced premium increases.
"Underperformance in parts of the New Zealand economy such as retail and hospitality is creating challenging conditions for households and businesses," Hawkesby said.
"Loan defaults have picked up, although they remain low compared to during the global financial crisis. Lower interest rates and high commodity prices are supporting some sectors, including agriculture."
Economic conditions
Persistent weakness in the domestic economy is creating challenging conditions for businesses. Banks are exposed to losses on their lending. However, financial stress varies across the economy. For example, lower interest rates and high agricultural export prices are supporting some sectors.
Trade tensions
Uncertainty around trade rules and divided policies could slow down the economic growth of countries we trade with. The future of trade relations between the US and China is still unclear. Rising government debt in advanced economies and stretched equity prices, particularly for big tech firms, are other key global vulnerabilities.
Housing market
Soft conditions in the housing market over a long period have challenged the construction industry. While house sales have picked up somewhat, national house prices have been broadly unchanged over the past three years. After introducing debt-to-income restrictions in 2024, we plan to ease loan-to value ratio restrictions from 1 December 2025.
Business stress
Weaker demand is reducing profits in some business sectors, especially those that rely on people spending money on non-essential items. Business failures have increased. More businesses are defaulting on their loans, although less than during the global financial crisis. Conditions are expected to improve gradually, supported by lower interest rates and improved economic conditions.
Reinsurance
Global reinsurers provide an extra layer of protection for domestic insurers. By sharing risks with investors globally, reinsurers make insuring severe events possible. Pressures on reinsurers have eased over the past two years. This has reduced increases in general insurance premiums for New Zealand households and businesses.
Cybersecurity
"Results from our 2024 Cyber Capability survey show that regulated entities report they are generally aligned to our guidance on cyber resilience. However, there is room for improvement, with cyber and operational risks remaining focus areas of our supervisory work," Hawkesby said.
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