Sharechat Logo

RBNZ plans bank stress testing to monitor sector's health in event of downturn

Wednesday 14th May 2014

Text too small?

The Reserve Bank is developing a stress testing framework for the nation's lenders to gauge their health in the event of a downturn.

The measure became commonplace since the global financial crisis as bank regulators tested the individual strength of lenders in the event of another crisis, and New Zealand's Reserve Bank wants to set up its own regime which it expects will "form a key component of the Reserve Bank's prudential and financial stability framework," it said in its six-monthly financial stability report.

The central bank is developing the initiative to assess the impact of emerging risks to the financial system, develop capability in identifying and responding to those risks, and provide prospective on the adequacy of lenders' capital buffers, it said.

"As well as providing an indication of the resilience of these institutions in an economic downturn, the exercise is designed to strengthen the stress testing capability of these institutions," the report said. "As capability grows, the Reserve Bank expects stress testing to extend beyond credit portfolios, and to become entrenched as a regular part of risk management process."

Registered banks are already required to conduct internal tests, and subsidiaries of the major Australian-owned lenders have participated in the Australian Prudential Regulatory Authority's regime.

The central bank's report found New Zealand's banking system was sound, with impairments on non-performing assets only just above the June 2006 low. The reduction in bad debt was largely in rural and commercial property sectors, while the housing sector continued to have the lowest share of non-performing loans.

Bank profitability was back to pre-GFC levels, largely due to the fall in impairment charges, and future earnings would "likely be influenced by how borrowers respond to the outlook for highe domestic interest rates."

 

BusinessDesk.co.nz

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar edges higher as concerns over Saudi attack ease
UK trade minister pops up into Wgtn, promises 'better deal' for NZ ag exports
A2, Synlait shares climb as takeover bid revives optimism about Chinese appetite for milk
Primary sector export revenue seen down 0.5% in FY2020
Z, BP, Waitomo challenge ComCom claims on excess returns
Abano shares jump 10% on takeover speculation
Service sector activity eases in August but still expanding
Abano shares jump 10% on takeover speculation
Service sector activity eases in August but still expanding
ANALYSIS: Wealth management now wags the stock-broking dog

IRG See IRG research reports