15 Jan 2013

IMF finds NZ banks could absorb housing price shock

3:08 pm on 15 January 2013

The International Monetary Fund says New Zealand's banks could withstand a collapse in house prices on the scale experienced in Ireland and still meet global standards for capital.

The IMF analysed the effects on bank balance sheets of a shock to the New Zealand economy equal to that in Ireland after the global financial crisis, when house prices halved.

The fund says bank capital has improved since 2007 to be above global standards but below the average for advanced countries.

It believes banks in New Zealand would have enough capital to absorb losses that would result from such a shock and still meet existing global standards.

However a simultaneous sharp fall in prices for houses and exports would put more stress on bank balance sheets and could, under the most extreme scenario, result in capital falling below the minimum required by global banking standards.

The fund says a capital boost could be beneficial given the local banks' high dependence on foreign borrowing and would limit the difficulties likely to be faced borrowing overseas in times of market stress.