Banks support financial outlook

The Reserve Bank’s latest Financial Stability Report issued today has confirmed that banks are supporting New Zealand’s financial outlook in the face of ongoing global economic challenges.

“Well-regulated strong banks are part of New Zealand’s current success compared to other countries,” says New Zealand Bankers’ Association chief executive Kirk Hope.

The report identified a number of factors underpinning the banking industry’s strength.

The banking sector’s core funding ratio is around 84 per cent, well above the Reserve Bank’s current minimum ratio of 70 per cent, rising to 75 per cent on 1 January 2013. “That means banks are sourcing more funds from domestic savings and longer term wholesale funds, and are less reliant on shorter term overseas funding,” says Hope.

Banks are also set to meet the Reserve Bank’s new minimum level of capital they must hold, which is based on the Basel III international standards. While banks’ return on equity was up, it remains below levels before the global financial crisis due to this need to raise capital buffers.

“On top of this, interest rates remain historically low, and competition among banks is high. The reduction in the average net interest margin by six basis points to 2.25 per cent in the June quarter shows this,” says Hope.