FX.co ★ New Zealand Financial System Well Placed To Address Challenges: RBNZ

New Zealand financial system is well placed to handle the adverse economic environment and to support customers facing hardship, the Reserve Bank of New Zealand said in its bi-annual financial stability report, released Wednesday.

"Banks' capital and liquidity positions are strong, and our recent stress tests have demonstrated banks' resilience to severe economic scenarios," Deputy Governor Christian Hawkesby said.

There are increasing downside risks to the global economic outlook, Hawkesby noted. "Despite New Zealand's high levels of employment and a sound government fiscal position, we are not immune to these risks," said Hawkesby.

The bank observed that house prices had fallen 11 percent from their late-2021 peak. House prices are forecast to remain above their sustainable level. A further gradual fall in house prices would be positive for the long-term financial stability.

If house prices continue to fall, the number of buyers with negative equity will grow, the bank noted. This would make the position of banks riskier if people find it difficult to service their debt.

Higher mortgage payments and fall in wealth would weigh on household spending, which in turn will slow economic activity, the report said.