RBNZ stress test shows improving bank resilience

Stress tests show strengthening resilience in the New Zealand banking sector and the benefits of continuing to build capital buffers, the Reserve Bank of NZ said on Tuesday.

The central bank conducted two complementary stress tests for retail banks. The “solvency stress test” confirmed NZ’s banking system is more resilient than a year ago thanks to higher capital levels. But the results also indicate that banks could have difficulties meeting higher capital requirements in case of a major crisis based on the new capital review standards to be implemented in 2028.

“This reinforces the need for banks to continue to build capital in good times,” said deputy governor Geoff Bascand.

The “liquidity stress test assessed the resilience of the 10 largest banks against liquidity shocks that result in large deposit outflows and limited access to market funding. The RBNZ said only four banks’ liquid assets could meet their net cash outflows for a period greater than six months, and only one bank in the very severe scenario lasted that long.

“Large banks fared worse than the smaller banks. However, banks were able to identify actions that, if effective, would considerably improve the outcome,” Mr Bascand said.

The findings will be used in the Liquidity Policy Review due to start next year.

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