Despite global credit crisis Reserve Bank report shows NZ's financial systems holding up well; banks well-placed to withstand downturn
12 November 2008 Reserve Bank Governor Allan Bollard says New Zealand's financial systems are holding up well, despite the global credit crunch.
The bank has released its November 2008 Financial Stability Report. It finds New Zealand's financial and payment mechanisms are performing well in the face of extreme disorder within international finance markets.
Dr Bollard says while the final impact of the financial and economic disruption is still not clear, local banks and their Australian parents, are well-placed to withstand the economic downturn. He says they have not experienced the significant financial losses affecting financial institutions in the United States and Europe. Dr Bollard says they also have sufficient capital buffers to withstand the higher loan losses that will inevitably result from the economic downturn. However he warns their access to offshore funding has suffered heavily.
?Recent global market conditions have affected the cost and accessibility of offshore funding that our banks ? and the country ? rely on heavily.?
The Reserve Bank says measures undertaken by central banks and governments around the world have contributed to some improvement in market conditions over recent weeks and New Zealand has adopted a range of policy measures to help reduce financial and economic risks.
Dr Bollard says an easing in credit growth and improved savings particularly by households has come with the slowing economy. Together with the decline in the exchange rate, those factors are expected to improve New Zealand's external balance and reduce the need for foreign borrowing over time.
?However, global developments have proven extremely disruptive and it will likely be some time before financial market conditions normalise. The Bank will continue to adopt measures as needed to maintain the stability of our financial system as far as possible in these difficult times.?
Deputy Governor Grant Spencer said the government's guarantee scheme for retail deposits and wholesale markets are a temporary response to exceptional circumstances. He says when finalised, a consultation document on proposed new standards for the banks? management of their funding and liquidity will reinforce incentives on banks to diversify away from short-term wholesale funding and reduce their vulnerability to credit market disruptions.
