NEW Zealand’s central bank said on Tuesday (Nov 5) that the country’s financial system remained resilient amid an economic downturn, and that risks to the system remain contained.
In its semi-annual Financial Stability Report, the Reserve Bank of New Zealand (RBNZ) said debt servicing costs were nearing their peak and beginning to decline, with advertised mortgage rates falling over the past six months.
Banks are expecting a slight increase in nonperforming loans though still below levels seen in previous recessions, the RBNZ said.
New Zealand’s economy contracted in the second quarter and is expected to have also contracted in the third quarter. Furthermore, unemployment is rising and sentiment remains at low levels.
However, RBNZ deputy governor Christian Hawkesby said that risks to the financial system remain contained and the strength of the country’s financial system means it is able to weather economic uncertainties and challenges, including increased geopolitical tensions.
“New Zealand banks are well positioned to continue supporting households and businesses, including effectively handling any potential loan defaults,” Hawkesby said.
The report added rising unemployment was contributing to nonperforming loans and with debt-servicing costs generally remaining high for now, rising unemployment is likely to cause more borrowers to default on their mortgage payments over the next six months.
The report said a recovery in export prices is helping farmers meet high costs but that a more severe economic downturn, particularly in China, remains a risk for farmers. REUTERS
