RBNZ Financial Stability Report: Acting to bolster financial system resilience

The Reserve Bank of New Zealand is acting to bolster financial system resilience - Reuters News

Description

The Financial Stability Report, released by Reserve Bank of New Zealand, is published six-monthly. In the Financial Stability Report we assess and report on the soundness and efficiency of the New Zealand financial system.

Full report

Key notes

• Decided to leave the LVR restrictions at current levels at this point in time.
• Strong bank capital buffers are key to enabling banks to absorb losses.
• Recent reviews of banks and life insurers, number of breaches reinforces need for institutions to improve behaviour.
• Will be taking a more intensive approach, which will involve greater scrutiny of institutions’ compliance.
• Some life insurers have low solvency buffers over minimum requirements.
• Need for insurers to maintain strong buffers, and insurer solvency requirements will be reviewed.
• The risk of large housing losses has reduced somewhat over the past three years.
• A significant share of the dairy sector remains financially vulnerable.
• A negative OCR is not currently a central scenario in our published forecasts.
• Considering the potential impacts of unconventional monetary policy tools on bank profitability.

FX implications

The RBNZ has kept the LVR restrictions unchanged for now, likely cognisant of the possibility that house prices could take off strongly again. Meanwhile, markets are looking ahead to the RBNZ’s final interest rate decision on December 5th. "The RBNZ will again have to walk the now-familiar tightrope of reassuring readers that the financial system is sound, yet setting the scene for what appears likely to be a sharp increase in bank capital requirements," analysts at ANZ Bank explained. NZD/USD was barely changed don the release of the report but it did score a fresh high for the day at 0.6431 and is headed into Asia +0.17%.