The Reserve Bank of New Zealand (RBNZ) has reported an uptick in financial system risks, attributing the change to deteriorating global conditions and ongoing domestic economic headwinds.
The findings were detailed in its May 2025 Financial Stability Report.
According to RBNZ governor Christian Hawkesby, although the financial system remains well-positioned, evolving global developments are introducing new pressures.
“Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,” he said. “While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.”
The central bank highlighted that recent US trade actions – including broad tariffs on imported goods from multiple countries, New Zealand among them – have intensified geopolitical tensions. These moves have contributed to greater market instability and are seen as a risk to worldwide economic performance.
Within New Zealand, economic activity continues to slow. Elevated interest rates, job losses, and a subdued housing market have dampened demand. However, some relief has come through reduced borrowing costs and stronger export revenues from agriculture, which are helping borrowers meet their financial obligations.
New Zealand’s banks are described as financially sound, with adequate capital reserves and liquidity to maintain lending in tougher conditions. Loan default rates are expected to improve as mortgage rates continue to adjust downward.
In the insurance sector, general insurers are currently operating in more stable conditions. The RBNZ recently conducted a stress test indicating improved sector resilience, although it also reinforced the risks associated with large-scale natural disasters, especially earthquakes.
Progress is also being made on reforms stemming from the Deposit Takers Act 2023. The upcoming Depositor Compensation Scheme – set to launch on July 1 – is a key initiative under this framework. It will provide depositors with protection if a financial institution fails.
“Work on the review of key bank capital settings is well underway, with the release of the Terms of Reference. This outlines the purpose, approach, and scope of the review to ensure the right settings are in place to support financial stability and promote the wellbeing and prosperity of New Zealand,” Hawkesby said.
He added that the central bank will engage with external experts to provide independent perspectives as it assesses the best path forward for financial stability.
