NZ banks have ‘strong capital and liquidity buffers’ to maintain credit flows

Risks have risen, but the banks remain profitable and bad loans will decline.

Banks in New Zealand have strong capital and liquidity buffers in place to maintain credit flows should the global economic environment deteriorate further, the country’s top financial regulator said in a statement.

Risks to the financial system have reportedly increased over the past six months, said Reserve Bank Governor Christian Hawkesby. Geopolitical risks have escalated especially after the US tariffs.

Banks should be able to maintain credit flows, Hawkesby commented following the release of the central May 2025 Financial Stability Report.

“They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower,” he said.

Progress is continuing on the implementation of the Deposit Takers Act 2023. Several strands of this work will help to promote competition and efficiency in the deposit-taking sector.

General insurers are experiencing “more stable conditions,” he added, with a recent stress test reportedly highlighting improved resilience in the sector.

Domestically, economic activity remains subdued. Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand, according to the Reserve Bank of New Zealand (RBNZ).

However, lower borrowing costs and high agricultural export prices are supporting debt serviceability, the central bank added.