The Reserve Bank of New Zealand published its May 2025 Financial Stability Report, concluding that risks to the financial system have increased over the past six months as global conditions have become more volatile, while assessing that New Zealand’s financial institutions remain in a strong position. Geopolitical risk has escalated, including following the United States’ imposition of sweeping tariffs on imports from many countries, which has heightened financial market volatility and poses a material risk to global activity. Domestically, economic activity remains subdued, with previously high interest rates, rising unemployment and a weak housing market weighing on demand, although lower borrowing costs and high agricultural export prices are supporting debt serviceability. Banks are described as having strong capital and liquidity buffers and remaining profitable, with non-performing loans expected to decline as mortgage rates reprice lower, while general insurers are experiencing more stable conditions; a recent insurance stress test pointed to improved resilience but also highlighted challenges from extreme seismic events. Implementation of the Deposit Takers Act 2023 continues, with workstreams intended to promote competition and efficiency in the deposit-taking sector. The Depositor Compensation Scheme is scheduled to come into effect on 1 July 2025, and the Reserve Bank also released Terms of Reference for its review of key bank capital settings and published scenarios for its 2025 bank solvency stress test focused on severe geopolitical risks, including trade tensions.

Original source View in tracker