“Banks in the country have relatively little risk from surging interest rates as they are required to hold sufficient capital to cover potential losses,” said Reserve Bank of New Zealand (RBNZ) early Monday per Reuters.
The RBNZ released excerpt of its May 2023 Financial Stability Report amid the ongoing banking fears due to the First Republic bank’s latest fallout.
Also read: Sources: PNC, JPM putting in final bids for First Republic in FDIC auction
Additional statements
Banks in New Zealand ‘manage this risk by matching the repricing profile of their assets and liabilities, and by using financial products to hedge any differences.’
They are also required to hold sufficient capital to cover potential losses arising from any remaining interest rate risk, which incentivises banks to carefully manage the risk.
NZD/USD grinds
With the RBNZ’s assurance, the NZD/USD battles with the market’s risk-off mood, as well as downbeat China data, while making rounds to 0.6170-80 and prints mild gains by the pres time.
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The Reserve Bank of New Zealand (RBNZ) recently released a report stating that New Zealand’s banking sector is well placed to cope with any potential hikes in interest rates.
The RBNZ’s report found that New Zealand’s banks are well capitalized, with strong levels of liquidity and sound financial fundamentals. As a result, New Zealand’s banks are unlikely to experience any large losses due to the potential rise in interest rates.
In addition, the RBNZ concluded that New Zealand’s banks have sufficient liquidity buffers to manage any anticipated volatility in market rates. This is due to the banks’ long-term financial strategies that have planned for higher short-term rates.
Finally, the RBNZ noted that the regulation of New Zealand’s banking sector has helped to reduce the risk of disruptive events caused by interest rate hikes. Banking regulations have made it more difficult for banks to make overly leveraged investments, which should help reduce their exposure to interest rate changes.
Overall, the RBNZ’s report paints a positive picture of New Zealand’s banking sector and its ability to manage any potential effect from any rises in interest rates. While any rate hikes will still be felt across the economy, the RBNZ is confident that New Zealand’s banks are in a strong position to cope with the volatility.
