Fragmentation of global trade and finance, and ongoing uncertainty continue to present risks. Elevated global equity valuations, in areas such as tech stocks, and growing government debt levels in many advanced economies are also vulnerabilities. As a small open economy, New Zealand would be exposed to any impacts on global economic activity or volatility in financial markets.
"Underperformance in parts of the New Zealand economy such as retail and hospitality is creating challenging conditions for households and businesses. Loan defaults have picked up, although they remain low compared to during the Global Financial Crisis. Lower interest rates and high commodity prices are supporting some sectors, including agriculture," explains Mr Hawkesby.
Banks remain well placed to manage the current uncertainty. Strong lending standards, including loan-to-value limits, have helped to restrict the amount of high-risk lending in the system. As demonstrated by our recent stress test, capital buffers would allow banks to cope with a significant worsening of the economy, while continuing to provide credit to support any recovery.
"To promote a resilient financial system that balances stability and depositor protection with competition and efficiency, we are currently assessing feedback on proposals for key capital settings and getting input from international experts. We intend to announce a decision in December.
We are also closely monitoring impacts from the introduction of the Depositor Compensation Scheme in July. Some non-bank deposit takers have seen deposit inflows as customers spread their money to maximise coverage and returns," Mr Hawkesby said.
In the insurance sector, property insurers have benefited from relatively few significant claims events and improved conditions in global reinsurance markets.
Health insurers, however, are facing significant growth in claims costs. This is resulting in operating losses and driving up customer premiums, as insurers look to restore margins.
"Results from our 2024 Cyber Capability survey show that regulated entities report they are generally aligned to our guidance on cyber resilience. However, there is room for improvement, with cyber and operational risks remaining focus areas of our supervisory work," Mr Hawkesby said.
More information
November 2025 Financial Stability Report
Watch our online FSR media conference on Microsoft Teams at 1pm, Wednesday 5 November 2025
Reserve Bank to ease LVR restrictions
See our recent bulletin outlining findings from our 2025 Bank Stress Test
