The RBNZ says New Zealand’s banks remain in a good position despite yesterday’s GDP result (a 12.2 percent drop between April and June) and the fact the country is now in recession for the first time since the GFC.
The Reserve Bank of NZ released the results of its latest stress test of New Zealand banks, having run a “base case stress test scenario” that assumed unemployment rising to 13 percent and GDP falling by 12 percent. This scenario also assumed a significant negative impact on property prices, the largest lending destination for banks. Modelling this showed Kiwi banks were able to continue their lending activity.
The RBNZ says "illustrates the benefit and necessity of shoring up bank capital in the good times to provide resilience".
It also ran a more a more severe economic scenario, which assumed unemployment rising to around 18 percent with an 18 percent decline in GDP. It said this scenario would see “banks come under considerable strain, and needing to access additional capital to remain above their regulatory minimums”.
Despite the recession and the assumption in the RBNZ’s stress testing, the Kiwi housing market is booming.
The Australian-owned banks quickly turned around their initially pessimistic forecasts when COVID-19 hit. Westpac NZ, for example, said “the housing market appears to have shrugged off the latest lockdown” and “we’ve revised up our house price forecast, and now expect an increase of 3.5 percent between March and December 2020”.
Westpac is now forecasting an annual increase of 8 percent for 2021.
In its pre-Election Economic and Fiscal Update (PREFU) this week, Treasury also predicted continuing rising house prices to 2024.