The banking system

The banking system comprises the majority of lending to the non-financial private sector in New Zealand (figure 2). 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.

Figure 2: Sources of non-financial private sector borrowing (as at 31 March 2022)

Figure 2: Sources of non-financial private sector borrowing

Source: RBNZ Standard Statistical Return (SSR), RBNZ Bank Balance Sheet Survey (BBS), RBNZ Securities Survey.

Note: Shares may not sum to 100 due to rounding.

The New Zealand banking system is highly concentrated. While there are currently 27 registered banks, the four large Australian-owned banks (ANZ, ASB, BNZ, and Westpac) are responsible for 85 percent of bank lending (figure 2). The five New Zealand-owned banks account for 9 percent of bank lending.

For the Australian-owned banks, the New Zealand subsidiaries’ total assets represent between 11 and 17 percent of their respective Australian parent group’s total assets.These Australian-owned banks all have high credit ratings by international standards (a table of current credit ratings is presented here).

Despite the New Zealand financial system being dominated by banks, the banking system itself is relatively small by global standards. Total assets of the banking system were just over $667 billion NZD in March 2022, which at around 188 percent of GDP is at the lower end of the range for OECD countries.

A consolidated balance sheet of the banking system is presented in table 1. Loans and advances account for around 80 percent of banking system assets. Banks hold a small amount of trading securities and their holdings of derivatives are primarily for hedging purposes. Deposits account for over 64 percent of liabilities and equity.

Table 1: Consolidated balance sheet of all banks1 (as at 31 March 2022)

  $m %
 Cash (notes and coins) 667 0.1
 Deposits (with depository institutions) 57,162 8.6
 Debt securities (net) 48,343 7.3
 Loans and advances (net) 526,720 79.0
 Derivatives in an asset position 19.659 2.9
 Demand balances with central bank 45,372 6.8
 Other assets -21,210 -4.7
Total assets 666,714
Liabilities and Equity
Deposits (net) 425,184 63.8
Debt securities (net) 115,936 17.4
Borrowings (net) 44,475 6.7
Derivatives in a liability position 19,786 3.0
Other liabilities 7,641 1.1
Total equity 53,692 8.1
Total liabilities and equity 666,714

Source: RBNZ BBS.

About 65 percent of bank lending is to the household sector. The vast bulk of which is secured against housing assets (figure 3). Lending to the agriculture sector accounts for around 12 percent of total lending, of which the dairy sector accounts for almost two thirds. Lending to the business sector accounts for 23 percent of total bank lending, around 38 percent of which is property related.

Figure 3: Sectoral banking system assets (as at 31 March 2022)

Figure 3 – Sectoral banking system assets (as at 30 September 2018)

Source: RBNZ BBS.

Bank funding is mostly sourced from domestic deposits (non-market) or the domestic wholesale market (figure 4). However, a small pool of domestic savings creates a structural need for the banking system to obtain funding from offshore. Currently around 20 percent of non-equity funding is sourced from offshore, with just over half of this at maturities of less than one year. Around 27 percent of non-equity funding is from the wholesale market.

Figure 4: Bank non-equity funding source (locally incorporated banks)

Figure 4: Bank non-equity funding source (locally incorporated banks)

Source: RBNZ Liquidity Survey.

New Zealand’s net external liabilities are high relative to most other developed economies, as a result of the weak domestic savings rate (figure 5). Offshore bank funding accounts for almost two-thirds of New Zealand’s net external liabilities. This creates a vulnerability to disruptions in global financial markets. However, almost all debt is hedged into NZD and reliance on short-term funding markets has declined markedly since the global financial crisis.

Figure 5: Net international investment position (% of GDP, as at 31 December 2021)

Figure 5: Net international investment position (percent of GDP, 30 June 2018)

Source: Haver Analytics.

The majority of bank funding is short term (figure 6), with around 83 percent having a maturity less than one year and just 10 percent with a maturity greater than two years. In comparison, bank assets have much greater maturities due to the maturity transformation function of the banks. Around 63 percent of lending is mortgages, at terms of up to thirty years. However, these assets have a relatively short time to re-price. Around 11 percent of mortgage loans are floating, and 49 percent are fixed loans due to be re-priced within one year (figure 7). About 23 percent of loans are fixed for a term greater than two years.

A mismatch between asset and liability maturity structure generates rollover and re-pricing risk. Despite banks hedging the majority of their interest rate risk, they remain exposed to offshore funding market volatility. Any increased cost of funds can flow through to retail rates if funding is rolled over at higher prices. This risk is partly mitigated by the core funding ratio which requires banks to maintain a minimum level of stable funding.

Figure 6: Bank funding composition (% of total non-equity funding, locally incorporated banks)

Figure 6: Bank funding composition (percent of total non-equity funding, locally incorporated banks)

Source: RBNZ Liquidity Survey.

Figure 7: Time to re-price on housing loans

Figure 7: Time to re-price on housing loans

Source: RBNZ BBS.


1 For a more comprehensive balance sheet see the S10 table.

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.

The Reserve Bank regulates banks, insurers, and non-bank deposit takers (NBDT), 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.