Overview of the New Zealand financial system

This information is designed to provide a broad overview of the structure of the New Zealand financial system1 and background information for the Financial Stability Report (FSR).

The Reserve Bank regulates banks, insurers, and non-bank deposit takers (NBDT)2, for the purpose of promoting the maintenance of a sound and efficient financial system. The Bank’s approach to prudential supervision is described in our Statements of supervisory and enforcement approaches. The Bank has no responsibility for non-deposit taking non-bank lending institutions (NBLI) or unlicensed insurers. The Reserve Bank also oversees and operates New Zealand’s financial market infrastructures.

The New Zealand financial system is dominated by the banking sector, with banking assets accounting for a very large share of overall financial system assets (figure 1). In contrast, capital markets are relatively less developed in New Zealand, with total market capitalisation of equities at the New Zealand Stock Exchange around $167 billion, while the domestic bond market is around $171 billion (excluding government debt). The managed fund industry is also small compared to banks, with around $200 billion of assets under management.

Figure 1: Financial institutions’ total assets (as at 31 March 20223)

figure 1 overview

Note: Numbers may not sum due to rounding.

Source: RBNZ Bank Balance Sheet (BBS), RBNZ Standard Statistical Return (SSR), RBNZ Non-Bank Deposit Taker Prudential Return (NBDTPR), Individual Insurer Financial Statements.

The banking system comprises the majority of lending to the non-financial private sector in New Zealand. Direct capital market funding (issuance of corporate bonds) and non-bank lending institutions (NBLIs) together account for only 6 percent of non-financial private sector borrowing.

Non-bank lending institutions (NBLIs) include non-bank deposit taking institutions (NBDTs) and non-deposit taking finance companies. The Reserve Bank of New Zealand regulates NBDTs, but does not regulate or supervise non-deposit taking finance companies. NBLIs account for just under 3 percent of intermediated credit, mainly focusing on the business and consumer sectors (figure 8).

The New Zealand private insurance sector is small by international standards. There are around 88 licensed insurers currently operating in New Zealand, accounting for approximately $27 billion in assets or 7.5 percent of GDP.1 2

Financial market infrastructures (FMIs) provide channels through which payments, securities, derivatives or other financial transactions are cleared, settled or recorded. Well-functioning and efficient FMIs play a critical role in promoting financial stability and economic growth. FMIs can strengthen the markets they serve; however, if not managed properly, they can pose significant risks to the financial system and be a potential conduit or source of contagion. A stable financial system therefore depends on careful management and mitigation of the key risks for FMIs.

1 This note is intended to provide a high-level overview of the structure of the New Zealand financial system, with a key focus on the banking sector. It does not include an extensive discussion of New Zealand financial markets.

2 Non-bank deposit takers include building societies, credit unions and finance companies that take deposits from the public.

3 Total assets are not yet available on a consistent basis for the insurance sector. The value is derived from individual insurer financial statements up to June 2020. Asset values may be accounted for differently across insurers.