The outbreak of conflict in the Middle East and closure of the Strait of Hormuz has created significant disruptions to the world's energy markets, adding to existing geopolitical and trade tensions. The longer the conflict persists the greater the risks will be to global financial stability, and as a small, open economy it is already having significant economic effects in New Zealand.
"Domestically, we have seen the immediate impacts of the conflict in rising fuel costs for households and businesses. High diesel prices are having the most impact on the transport and logistics sectors, as well as primary industries including forestry and fishing. While economic growth had been recovering prior to the conflict, we are now likely to see a somewhat slower recovery, affecting job growth and debt servicing," explains Dr. Breman.
Banks have strong capital and funding buffers meaning they are well placed to support customers who may be struggling, as well as manage stresses in offshore funding markets. Stress test results demonstrate that banks can withstand significant economic shocks, including geopolitical events like the Middle East conflict.
For insurers in New Zealand, we assess the direct impacts of the Middle East conflict to be limited. Health insurers have needed to raise premiums and adjust policies following several years of high claims costs, and this has improved solvency margins in the sector. This year we are progressing a stress test of life and health insurers.
This edition of the Report includes two special topics on financial stability issues. The first is on access to credit for smaller businesses, highlighting the elevated borrowing costs firms face. There are opportunities to improve pricing transparency so that firms can better understand whether they are getting a good deal. The second topic is on global fiscal sustainability. This discusses rising public debt pressures in major advanced economies and how these may pose a global financial stability risk, which could affect New Zealand. We also provide an overview of general insurance coverage in New Zealand and its link to financial stability.
The report outlines current and recent work to promote an efficient and resilient banking system, building on the more intensive supervision, enforcement and resolution approaches we have been developing in recent years. This includes the outcome of our recent review of capital settings for deposit takers.
More information
May 2026 Financial Stability Report
Watch our online media conference at 1pm, 6 May 2026
2025 Review of Key Capital Settings
