12 Nov 2009

Reserve Bank warns more finance companies may fail

7:08 am on 12 November 2009

The Reserve Bank says the country's financial system has weathered the recession well and is in better heart than six months ago.

But it warns it still expects some more finance companies to go under as they struggle with the consequences of the recession.

Radio New Zealand's political editor says the Reserve Bank's latest six-monthly financial stability report makes better reading than the one earlier in the year.

It says banks here and in Australia have done well compared with banks from other countries.

The bank's Governor Alan Bollard says trading banks have been told not to repeat the sort of lending which fuelled the housing boom.

The deputy governor, Grant Spencer, says trading banks are being more cautious about lending and regulatory changes coming into effect next April will also strengthen the financial system.

But Mr Spencer says non-bank institutions still face problems and some are likely to fail.

Bad debts will continue to climb

The Reserve Bank is expecting the amount of bad debt on banks' book to continue to climb, and not start easing back until late next year.

Its six monthly report warns of futher loan losses due to rising unemployment and weaknesses in some sectors, including property, constuction and agriculture.

The bank says problem loan levels are unlikey to peak until around mid to late 2010. An improvement in asset quality will significantly lag behind the economic recovery.