MNI POLICY: Insurers and Non-banks Lenders A Risk in NZ: RBNZ

--RBNZ FSR Sees Overall System 'Robust And Sound'

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand sees non-bank lenders and

the insurance sector as potential risks to domestic financial stability, but,

according to Governor Adrian Orr, the system is generally "robust and sound."

     The RBNZ's Financial Stability Report, published Wednesday, says there will

be business failures and loan defaults as the country emerges from the Covid-19

disruptions but capital buffers built up by banks will allow them to keep

lending and protect the wider financial system.

     Of greater concern were non-bank lenders and insurers. Some non-banks had

"low profitability and were operating with low financial buffers", while some

life insurers had low solvency buffers which had been adversely affected by

falling interest rates, the FSR said.

     "A number of insurers are exposed to investment losses as a result of

movements in interest rates, bond spreads and equity prices," the report added,

noting that "some providers of credit insurance appear vulnerable to a

significant increase in unemployment."

     In the wider economy, businesses in sectors such as tourism and hospitality

would come under pressure as would household incomes, "likely to lead to

difficulty in servicing their mortgages". 

     The RBNZ expects a 10% fall in housing prices, and is expected a 10%

decline in GDP this year.

     --NOT UNLIMITED

     Although the financial system's capacity to absorb shocks "was not

unlimited", NZ was in a "solid position" as it entered the next economic phase,

Orr said.

     "Initial results from stress tests suggest banks will be able to absorb

losses associated with a broad range of adverse scenarios," the FSR said.

     "However, there are limits to this resilience, and banks' capital positions

could come under stress if the downturn in economic activity is more severe or

prolonged than expected."

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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