About our banking sector
Although the New Zealand financial system is dominated by banks, our banking sector is quite small by international standards. In September 2024, registered banks had total assets of just under $715 billion NZD. This represents around 175% as a share of our Gross Domestic Product (GDP), which is at the lower end of the range for OECD countries.
The assets of four Australian-owned banks
The New Zealand subsidiaries of the four large Australian-owned banks (ANZ, ASB, BNZ and Westpac) have total assets of around 10% to 15% of their parent group’s total assets. These four banks all have high credit ratings by international standards.
Credit ratings of New Zealand banks
Our balance sheet
Table 1 shows a consolidated balance sheet of the banking system. Loans and advances account for around 80% of banking system assets.
Banks hold a small amount of trading securities and their holdings of derivatives are mainly used for hedging. Deposits account for over 64% of liabilities and equity.
Table 1: Consolidated balance sheet of all banks (as at September 2024)
| $m | % | |
|---|---|---|
| Assets | ||
| Cash (notes and coins) | 429 | 0.1 |
| Deposits (with depository institutions) | 40,360 | 5.6 |
| Debt securities (net) | 63,005 | 8.8 |
| Loans and advances (net) | 566,022 | 79.2 |
| Derivatives in an asset position | 21,668 | 3.0 |
| Demand balances with central bank | 32,366 | 4.5 |
| Other assets | -8,903 | -1.2 |
| Total assets | 714,947 | |
| Liabilities and Equity | ||
| Deposits (net) | 457,484 | 64.0 |
| Debt securities (net) | 104,330 | 14.6 |
| Borrowings (net) | 50,081 | 7.0 |
| Derivatives in a liability position | 24,929 | 3.5 |
| Other liabilities | 14,453 | 2.0 |
| Total equity | 63,670 | 8.9 |
| Total liabilities and equity | 714,947 |
For a more comprehensive balance sheet see Banks: Balance sheet (S10)
Who banks lend to
Banks account for most of the lending to households and non-financial businesses in New Zealand, whereas direct capital market funding (the issue of corporate bonds) and lending by non-bank lending institutions (NBLIs) together account for only 6% of lending to these sectors (figure 1).
Figure 1: Sources of lending to households and non-financial businesses (as at 30 September 2024)
Figure 1 shows the percentage of lending to New Zealand households and non-financial businesses from different sources, as at 30 September 2024.
The shares of this lending sourced from bonds and non-bank lending institutions are small, at 3% each. Banks hold the largest share of lending at 94%.
Of the share of lending held by banks, Australian-owned banks hold 84%, New Zealand-owned banks hold 10%, and other banks 6%.
The percentage of total bank lending to different sectors is:
- about 66% to the household sector, most of which is secured against housing assets (see figure 2)
- around 11% to the agriculture sector, with the dairy sector accounting for almost 60 percent of this
- 23% to the business sector, around 36% of which is property related.
Figure 2: Sectoral banking system assets (as at 30 September 2024)
Where banks get their money
Banks get most of their funding from domestic retail deposits (figure 3).
They also get funding from overseas to supplement the small pool of domestic savings. Currently, banks source around 18% of non-equity funding overseas. Just over half of this is at maturities of less than one year. Around 25% of non-equity funding is from the wholesale market.
Figure 3: Bank non-equity funding source (locally incorporated banks)
Our debts from overseas borrowing
New Zealand's net external liabilities are high compared to most other developed economies (figure 4). This is a result of the weak domestic savings rate. Offshore bank funding accounts for almost two-thirds of New Zealand's net external liabilities. This makes us vulnerable to disruptions in global financial markets.
Almost all our debt is hedged into New Zealand dollars, which largely offsets the financial risk as we can provide local currency liquidity if funding risks spike unexpectedly. Also, our reliance on short-term funding markets has reduced markedly since the global financial crisis.
Figure 4: Net international investment position (% of GDP, 30 June 2024)
Figure 4 shows net international investment position (NIIP) as a % of gross domestic products (GDP) for 18 countries, including New Zealand.
A negative (positive) NIIP means that the non-residents own more (less) domestic assets of the country compared to its residents' ownership of foreign assets. New Zealand has the fourth lowest (most negative) NIIP out of the countries in the figure at -50% of GDP, after Greece, the US, and Portugal.
By comparison, bank assets tend to have longer maturities due to the maturity transformation function of the banks. That is, their practice of borrowing money on shorter timeframes than they lend money out.
In general, this mismatch between the maturity timeframes of banks' assets and liabilities can create interest rate risks. Banks’ debt obligations may need to be refinanced at higher rates, or on less favourable conditions than previous debt issuance. If higher funding costs are not passed on to borrowers in a timely manner, this would reduce the net interest incomes of banks.
However, New Zealand banks’ lending is generally at variable or short-term fixed rates, which reduces banks’ exposure to interest rate risks. Banks try to match the timing of interest rate repricing between their assets and liabilities, to reduce the effect of interest rate changes on their incomes.
Around 64% of banks' lending is mortgages with terms of up to 30 years, but they have a relatively short time to re-price. Around 10% of mortgage loans are floating, and two-thirds are fixed and due to be re-priced within one year (figure 6). Only 7% of loans are fixed for a term greater than two years.
Banks and their customers will be affected by volatility in offshore funding markets. Any increased cost of banks' funds can flow through to retail rates if funding is refinanced at higher prices. This risk is partly offset by the core funding ratio requirement, which requires banks to maintain a minimum level of stable funding. Banks are required to hold sufficient liquid assets to meet their financial obligations in a period of stress, which increases their resilience to temporary disruptions in funding markets.
