Financial institutions urged to prepare for changes in borrowing behaviour
New Zealand’s ageing population is set to bring far-reaching economic and financial changes, according to a new special topic article from the Reserve Bank of New Zealand’s (RBNZ) Financial Stability Report.
While the demographic transition is unfolding gradually, RBNZ is encouraging financial institutions to proactively assess and respond to the evolving landscape.
“An ageing population is likely to influence savings, borrowing and investment behaviour,” said Kerry Watt (pictured), Director of Financial System Assessment at the RBNZ, in a media statement. “This in turn will affect interest rates, asset prices, and the demand for financial products. The overall impacts may be complex and vary over time.”
The Financial Stability Report followed RBNZ’s widely expected decision to hold the official cash rate at 3.25%. Despite the pause, major banks including ASB, Westpac, Kiwibank and ANZ continue to forecast further rate cuts, likely starting in August.
Savings expected to rise then fall as retirement wave builds
RBNZ notes that as the population ages, total savings are expected to increase in the near term as older workers prepare for retirement, before declining as retirees begin drawing down those savings.
This shift will influence interest rates, which have already been pushed lower by demographic trends in recent decades. RBNZ expects continued downward pressure on neutral interest rates, although other economic factors could temper this effect.
“Understanding and adapting to these changes will be key to maintaining financial system resilience,” Watt said.
Impacts on interest rates, asset prices, and investor behaviour
The transition to an older population may lead to lower interest rates, which could in turn lift asset prices for housing and equities. However, as investors age, there may be greater demand for lower-risk assets, and preferences could shift across housing types.
Increased demand for safe investments could reshape market dynamics, while uncertainty around interest rate projections may challenge long-term planning for institutions and investors.
Banking, insurance, and policy transmission likely to evolve
For banks, an ageing population may bring more deposit funding, as older savers seek low-risk places to hold capital, and reduced demand for housing credit. In response, banks may focus more on wealth management and other lending services.
RBNZ also notes that the strength and speed of monetary policy transmission could change. At the same time, rising government spending on healthcare and superannuation will place new pressures on fiscal policy.
In the insurance sector, demand for health insurance is expected to rise with increased healthcare needs, while life insurance demand may decline.
