Businesses across all sectors are facing uncertainty as New Zealand remains vulnerable to disruption in international trade and global financial markets. Over the coming weeks, Bancorp will share analysis and market insights on the new ‘normal’ of doing business in the midst of a pandemic. From changes in the New Zealand bank market to treasury policy response and modelling to best manage risks and exposures.
Domestic bank credit availability tightens – changes to lending policies & credit terms
- The Reserve Bank of New Zealand (RBNZ) has worked alongside the Government and the banking industry to ensure credit markets remain open through the COVID-19 environment. To enable this, the RBNZ has delayed increasing capital requirements, relaxed rules on how much bank funding needs to come from long-term sources, and temporarily removed restrictions on low deposit loans. While this has granted banks a reprieve from tighter capital requirements, NZ banks have adjusted their lending with significantly tighter credit available to the market.
- Initial results from stress tests conducted by the RBNZ suggest NZ banks will be able to absorb losses associated with a broad range of adverse scenarios. 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.
- As a small open domestic economy that borrows from abroad, New Zealand remains vulnerable to disruptions in international trade and financial markets. Offshore credit markets are a key source of funding for New Zealand banks, representing close to a quarter of their total finding.
- Credit availability compared with the previous three years…