Banks in good position to weather crisis: RBNZ

AUCKLAND: The country’s banks are strong enough to withstand the worst of the Covid19 pandemic, but would be vulnerable to a major rise in unemployment and plunge in house prices, according to the Reserve Bank (RBNZ).

The RBNZ has stresstested the financial strength of the main banks and found they have sufficient capital to weather the crisis.

The top nine retail banks, which control more than 90% of the country’s banking market, were tested against two hypothetical ‘‘bad news’’ scenarios: a onein50/75year event when house prices fall 37% and unemployment hits nearly 14%; and a more severe onein100 slump in which house prices fall 50% and unemployment close to 18%.

The testing was done at the start of the pandemic, and RBNZ manager financial systems analysis Chris Bloor said the actual pressure Covid19 caused, and the easier scenario, showed banks were strong enough.

‘‘Banks were resilient in the first scenario . . . much worse than we’re currently forecasting . . . what we take from this is that while banks will be impacted by this downturn in the economy we think they will be able to come through relatively well.’’

Under the more severe scenario the banks would fall below the minimum capital levels required by the RBNZ, and this would mean they would have to raise more finance and strengthen their balance sheets, Mr Bloor said.

‘‘That shows that banks aren’t invincible and highlights what we were trying to do last year. . .’’

The RBNZ’s controversial decision last year to make banks beef up their finances over seven years has been delayed until next year.

At the start of the pandemic it ordered them not to pay dividends to preserve cash. All the major banks have reported a marked rise in bad and doubtful debts in recent months. — RNZ