NZ financial system holding up, but global risks growing

Speaking at a recent FINSIA event in Auckland, Kerry Watt, Director of Financial Stability at the Reserve Bank, said the system is in a stronger position than during the GFC. In the Bank’s view, resilience has improved—but caution is still warranted.

Falling interest rates are easing pressure on borrowers, providing support for households and small businesses. However, growing trade restrictions continue to pose financial stability risks, particularly if global demand slows.

The good news for mortgage and financial advisers is that lending conditions remain sound. Banks are well-capitalised, and stress testing continues at rates significantly above current lending levels. Macroprudential tools—such as LVRs and debt-to-income restrictions—are adding further stability.

Watt also outlined recent Reserve Bank stress tests, including scenarios simulating a major earthquake and a large-scale cyberattack. While these events would cause short-term strain—potentially pushing institutions below liquidity requirements and requiring capital top-ups—the financial system remained operational throughout.

The key takeaway for advisers: New Zealand’s system is well-placed to absorb major shocks, including 1-in-1200-year events. While the environment remains uncertain, the foundations appear strong.