Wellington: New Zealand’s financial stability risks remain higher than in recent years amid fragmentation of global trade and finance, and ongoing uncertainties, a Reserve Bank report said on Wednesday.

According to Namibia Press Agency, the Reserve Bank of New Zealand acknowledged that as a small open economy, New Zealand is vulnerable to any impacts on global economic activity or volatility in financial markets. The biannual Financial Stability Report highlights vulnerabilities such as elevated global equity valuations, particularly in tech stocks, and increasing government debt levels in many advanced economies.

Reserve Bank Governor Christian Hawkesby pointed out that underperformance in sectors like retail and hospitality in New Zealand is creating challenging conditions for households and businesses. Although loan defaults have increased, they remain well below crisis levels. Hawkesby noted that lower interest rates and high commodity prices are providing support to some sectors, including agriculture.

The report emphasizes that banks are well positioned to manage the current uncertainty, thanks to strong lending standards, such as loan-to-value limits, and capital buffers. These measures would enable banks to cope with a significant economic downturn while continuing to provide credit to support recovery efforts.

To ensure a resilient financial system that balances stability and depositor protection with competition and efficiency, the central bank is evaluating feedback on proposed capital settings and plans to announce decisions in December. Hawkesby also mentioned that although most financial institutions meet cyber resilience guidelines, further improvements are necessary.