MNI POLICY: RBNZ Sees Financial Risks "Elevated": May FSR

By Lachlan Colquhoun

     SYDNEY (MNI) - High levels of debt in the dairy industry and among

households, combined with global economic headwinds, have created "elevated"

risks for the New Zealand financial sector, the Reserve Bank said Wednesday.

     "Now is the time" to improve the resilience of the financial system "by

increasing conduct levels and addressing conduct challenges," the RBNZ's

Financial Stability Report for May said.

     While risks were at the same level as six months, NZ households and dairy

farms faced financial problems if their incomes fell or costs rose, the

statement said.

     This would flow through to "large losses" for banks if these lenders

defaulted at the same time as home and farm prices fell.

     "It is imperative to improve NZ's financial system while conditions are

conducive," Orr said.

     He pointed to proposals for banks to improve their capital position as an

example of action the RBNZ was already taking to stiffen the financial system.

This process is currently in the consultation phase.

     There was also a need for insurers and non bank deposit takers to also

improve their capital buffers, and the RBNZ would be renewing insurer solvency

standards in the months ahead.

     Among consumers, Orr said restrictions on loan to value rations for home

borrow had succeeded in reducing some risk. LVR's are reviewed on a six monthly

basis.

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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

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