11 May 2011

Health of banks seen as improving

2:34 pm on 11 May 2011

The Reserve Bank says the health of lenders in New Zealand continues to improve in the wake of the financial crisis.

In a twice-yearly financial report, the bank says the economy continues to improve and that will benefit the banks.

It says bad loans carried by the banks are expected to fall as the economy continues to recover.

But that could take longer than first thought, because of the Christchurch earthquake and the slowness of the recovery.

The Reserve Bank says small European countries debt problems could yet hit banks here, making overseas funding for loans difficult to obtain, but there is no sign of this yet.

It also notes the possibility of a downgrade of Australasian banks by the credit rating agency Moody's.

However, the effect of that on domestic interest rates could be muted because foreign lenders are already charging domestic banks higher interest rates - as if they had been downgraded anyway.

The Reserve Bank estimates that is already costing New Zealand banks up to 30 basis points more to borrow.