Bollard warns of high debt levels and riskier bank lending

Commenting on the Reserve Bank's twice yearly financial stability report, Bollard said while the financial system as a whole was in sound shape "the risks to investors, households and some firms had been increasing.

Household and farm sector indebtedness has continued to increase and these developments could result in some financial strain if the economy slows, the boom in agricultural export prices does not last, or the New Zealand dollar appreciates further".

Household sector debt was at unprecedented levels, having doubled to $56 billion owed to banks in 2004 from $28 billion in 1990.

Bollard also said the major banks had recorded strong growth in lending and earnings recently.

The return on assets for New Zealand's four major banks during 2004 was 1.1%, slightly better than the international standard of "good" performance of 1%.

However, it was possible banks would try to maintain that by taking on higher risk business.

Read More - Opens in a new window