No widespread financial distress amongst households or businesses, central bank says
New Zealand’s banking system has continued to be resilient as loans to households and businesses steadily reprice to higher interest rates, according to the Reserve Bank of New Zealand.
Debt servicing costs have increased considerably from historically low levels during the COVID-19 pandemic. Households with a mortgage would likely see the share of disposable income required to service the interest component of their mortgage debt to increase by more than double from its recent low of 9% to around 22% by the end of this year.
Despite this, household balance sheets as a whole remained resilient, with most households with a mortgage still having substantial equity buffers, partly due to the impact of previous LVR restrictions, said Christian Hawkesby (pictured above), RBNZ deputy governor.
Although early-stage arrears have been rising in recent months, this took them back to the same level they were before the pandemic, and were still lower than the period following the Global Financial Crisis.
“We are not currently seeing widespread financial distress amongst households or businesses, which reflects the strength in the economy and labour market to date,” Hawkesby said. “However, more borrowers may fall behind on their payments this year, given the ongoing repricing of mortgages and expected weakening in the labour market.
“Recent profitability and strong capital positions puts banks in a good position to take a long-term view and support their customers. We encourage borrowers encountering stress to talk to their banks, as hardship programmes may be available, and some customers may be able to temporarily switch to interest-only payments or increase the remaining term of their loan.”
Find out more about this topic from RBNZ full Financial Stability Report, published today, May 3.
Use the comment section below to tell us how you felt about this.
