Banking System Resilient, Arrears Remain Low

The RBNZ will publish its May 2023 “Financial Stability Review on Wednesday but has released an excerpt from it today. It concludes that despite higher rates and global banking turmoil the NZ banking system “remains resilient”. It hasn’t seen “widespread financial distress amongst households or businesses” as they “reprice to higher interest rates”. Thus financial stability is unlikely to prevent the RBNZ from hiking again on May 24.

• Deputy Governor Hawkesby said “household balance sheets remain resilient in aggregate, with most households with a mortgage still having substantial equity buffers – in part due to the impact of previous loan-to-value ratio restrictions.”
• He also noted that “Although early-stage arrears have been increasing in recent months, this takes them back to where they were before the pandemic, and they remain low when compared to the period following the Global Financial Crisis.” The share of disposable income needed to service mortgage interest is expected to rise to 22% by end-2023 from a low of 9%.