10 Oct 2008

Repayment difficulties signalled for banks

9:22 am on 10 October 2008

The slide in the New Zealand dollar in the past week may make it harder for banks to borrow offshore just as they're due to repay short term loans to foreign creditors.

The Reserve Bank estimates banks are due to repay $NZ60 billion in the next 40 days.

But Massey University banking expert David Tripe says overseas lenders will fear losses if they roll over that debt and the kiwi continues to fall.

Steps were taken on Thursday to make it easier for banks to borrow from the Reserve Bank using securities backed by residential mortgages as collateral.

Radio New Zealand's economics correspondent says New Zealand has gone from a situation where until last August the Reserve Bank accepted only very safe government bonds as security for loans to banks, to one where it is now willing to accepting un-rated securities backed by mortgages on houses - which are hardly the most stable of assets at the moment.

At 8.20am on Friday, the New Zealand dollar was trading at US60.96 cents, 88.42 Australian cents, 35.46 pence, 60.88 yen and 0.4464 euro The Trade Weighted Index was at 60.04.