Financial Stability Report November 2025

Summary

The Financial Stability Report outlines our assessment of risks to financial stability. Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk.

Financial stability risks remain higher than in recent years due to global uncertainty and underperformance in parts of the New Zealand economy. Trade tensions present risks to our exporters and have affected business confidence. Persistent weakness in the domestic economy is creating challenging conditions for businesses, exposing banks to credit losses. However, financial stress is not uniform across the economy, with lower interest rates and high agricultural export prices supporting some sectors. Banks also have robust financial buffers to absorb shocks.

Global economic fragmentation and policy uncertainty present risks to trading-partner growth. The outlook for trade relations between the US and China remains uncertain. Many central banks are easing monetary policy in response to projected lower growth and lower inflation. Policy uncertainty and a weaker labour market have contributed to softer economic activity in the US. China’s growth outlook has improved, but risks remain. Investors have also become more concerned about fiscal sustainability risks in the US and some other advanced economies.

Recovery in global financial markets masks potential vulnerabilities . Global equity prices have rebounded from their lows earlier in the year. The strong recovery in US equity prices has been driven by technology and artificial intelligence firms. Equity prices could fall if earnings disappoint expectations.

Certain business sectors are more exposed to weak domestic demand than others. Conditions are particularly challenging for businesses reliant on discretionary consumer spending (see Special Topic 1). The non-performing share of business loans has increased, but is still low compared to previous downturns. Business credit demand remains subdued as capital investment is muted.

The agriculture sector has been supported by strong export prices.The US tariff rate on imports from New Zealand has increased. However, the impact of US tariffs on our exporters is expected to be manageable, particularly for standardised commodities such as meat. The impact of tariffs on incomes in our key trading partners and therefore demand for New Zealand exports remains a key risk.

Lower debt-servicing costs are alleviating stress in some areas. Mortgage debt-servicing costs are easing as borrowers reprice onto lower interest rates, and acute household stress has started to decline. Household credit demand is beginning to recover. Commercial property borrowers have also benefited from lower interest rates, but increasing vacancy rates remain a risk.

Protracted soft conditions in the housing market have challenged the construction industry. While house sales have picked up somewhat, national house prices have been broadly unchanged over the past three years. Following the introduction of debt-to-income restrictions last year, we plan to ease loan-to-value ratio restrictions from 1 December 2025.

Banks have increased their resilience to a range of shocks . Banks remain profitable and have continued to increase their capital ratios (see Chapter 4). The 2025 solvency stress test shows that banks are positioned to absorb loan losses and continue to provide credit if economic conditions worsen. We are reviewing key settings for capital requirements for deposit takers and aim to make final decisions by the end of 2025 (see Chapter 3).

Banks remain well funded in a low credit growth environment. Banks are competing more proactively for lending opportunities, supporting the availability of credit. The Depositor Compensation Scheme is now operational, contributing to increased deposits for some non-bank deposit takers.

Property insurance premium growth has moderated, but affordability challenges continue to grow. More favourable conditions in global reinsurance markets have contributed to this moderation (see Special Topic 2). In contrast, rapid growth in claims costs for health insurers has put the sector under strain and is driving up health insurance premiums.

We are increasing our efforts to monitor cyber risk. Our Cyber Capability survey shows that regulated entities are generally aligned with our guidance (see Special Topic 3). The findings will inform our approach to promoting operational resilience in regulated entities.

Growth in China has been supported by industrial production and export growth. China’s economic outlook has improved moderately over the past six months, partly owing to fiscal support targeted at household demand. However, risks remain around the weak housing market, fragile consumer confidence, and high levels of local government debt.

Markets have become more concerned about fiscal sustainability risks in the US and other advanced economies.³  This is evidenced by higher long-term government bond yields and a rise in the compensation investors demand for bearing credit risk. This concern reflects elevated sovereign debt levels, large fiscal deficits, and recently proposed US tax cuts. As the US Federal Reserve is gradually reducing its US government securities holdings, the bond market is becoming more reliant on more risk-sensitive private investors. This may cause sovereign yields to become more responsive to fiscal sustainability concerns over time.

Many central banks are easing monetary policy in response to projected lower growth and inflation

Inflation has continued to decline across advanced economies and remains low in China and other emerging Asian economies, which largely reflects subdued demand. The effect of tariffs on US inflation has been limited to date, reflecting pre-tariff inventory accumulation and tariff pauses for some countries. However, tariffs are expected to add to inflationary pressures in the US for the rest of 2025 and into 2026.⁴

The US Federal Reserve lowered its policy rate in September and October owing to concerns about the softening labour market, despite upside risks to inflation from tariffs. Market participants expect that central banks in the US, euro area, UK, and Australia may ease monetary policy over the next 12 months.

Trade tensions reflect the broader increase in geopolitical risks

Geopolitical risks to financial stability have increased over the past decade, reflecting escalating international tensions and trade disputes. New Zealand’s export sector remains highly dependent on demand from the Asia-Pacific region, creating concentration risks. Further deterioration of global trade frameworks and a broadening of regional conflicts, including in the Middle East, would increase risks to energy prices and global growth. This would have an adverse impact on New Zealand as a small open economy reliant on international trade.

Our 2025 bank solvency stress test examines the resilience of major New Zealand banks to geopolitical tensions and global economic fragmentation, as well as targeted shocks for individual banks.⁵ The stress test outcomes show that the major banks can withstand a severe recession caused by worsening geopolitical tensions.

Mortgage borrowers continue to shift from relatively high floating rates to lower fixed rates, as expectations increase that the OCR is nearing its trough in the current cycle. Mortgage borrowers are switching lenders more often to seek more favourable lending terms. Lenders are competing more aggressively for borrowers. Banks have continued to reduce their serviceability test rates for new borrowers as mortgage rates have declined.

Household stress has started to decline as debt-servicing costs have fallen. Fewer borrowers are now falling behind on debt repayments. Borrowers who had previously been in default are finding ways to mitigate stress with the lower debt-servicing costs. Longer-term arrears and impairments have stabilised, but have not improved materially yet. Banks expect non-performing loans to continue to decrease over the next year (figure 1.6), supported by improved borrower cashflows. Instances of mortgagee sales remain low.

We are easing LVR restrictions following the introduction of DTI restrictions

Our assessment is that risks associated with new mortgage lending are contained. House prices remain near the top of our range of sustainable estimates. New mortgage lending with relatively high debt-to-income (DTI) ratios and loan-to-value ratios (LVR) has picked up but remains low. Overall housing credit growth remains subdued as well. The DTI restrictions we introduced in July 2024 act as a guardrail to constrain the share of highly indebted lending if housing credit demand rises materially.

We are in the process of easing mortgage LVR restrictions from 1 December 2025.⁸ We intend to increase the owner occupier speed limit to 25 percent from 20 percent for lending with an LVR above 80 percent, and increase the investor speed limit to 10 percent from 5 percent for lending with an LVR above 70 percent.⁹  The introduction of debt-to-income (DTI) restrictions last year means LVR settings can be less restrictive on average. This includes looser default settings that we expect will be in place most of the time, except for when risks are particularly elevated.

While the likely impact of this easing on the housing market will be small, it will give banks slightly more flexibility. Over time, we expect this will help minimise the unintended impacts of the policy and support access to credit.

Housing market activity has picked up somewhat, although house prices remain flat

House market activity has picked up from its low point in 2023, supported by lower interest rates and policy changes. National house prices remain around 12 percent below their November 2021 peak and have been broadly flat over the past three years (figure 1.7). Elevated housing inventories in Auckland and Wellington are weighing on house prices, reflecting the soft labour market and low net migration, and offsetting stronger house price growth in parts of the South Island.

Low levels of net migration and a soft labour market continue to restrain housing demand. Falling rents and low expectations of capital gains are weighing on investor demand, although the reinstatement of interest deductibility for tax has provided some support.

We are reviewing key settings for capital requirements

Consultation on policy proposals for key capital settings closed in early October¹⁰, and we are currently assessing feedback alongside views from independent international experts. A final decision on capital settings is expected by the end of 2025 (see Chapter 3).

Competition and efficiency are important elements of our financial policy development. We have developed competition assessment guidelines for prudential policy¹¹, partly in response to a Commerce Commission recommendation. The implementation of the Deposit Takers Act 2023 includes a proportionality framework to ensure that regulation is calibrated to the scale and complexity of different-sized deposit takers. We are seeking feedback on allowing a wider set of deposit takers to use the term ‘bank’ in a name or title, which supports an efficient and competitive deposit-taking sector.

Banks remain well funded and have strong liquidity positions

Core funding ratios remain elevated relative to regulatory requirements. Wholesale funding spreads have fallen to low levels in funding markets. Deposit growth has been robust in an environment of low credit growth, reducing the need for new issuance of wholesale funding. Despite this, banks have continued to raise funding in offshore markets to maintain investor relationships in preparation for a potential pick-up in credit demand. Banks’ liquidity positions remain robust, despite some easing over the past year.

Our 2025 bank liquidity stress test assessed the resilience of 10 banks to liquidity shocks over a 6-month period. We found that banks’ resilience to liquidity stress has declined slightly compared to the 2024 stress test, but remains stronger than in 2021.

The implementation of the Depositor Compensation Scheme (DCS) has not materially affected bank deposit flows or their pricing behaviour so far. Some non-bank deposit takers have reported an increase in deposit inflows, as depositors spread their deposits to maximise their coverage (see Chapter 4). This has also coincided with a sharp reduction in the differential between their deposit rates and bank rates. We remain at an early stage of the DCS and will continue to monitor developments.

Pressures on general insurance premiums have moderated, but affordability challenges continue to grow

Growth in general insurance costs has continued to slow over the past six months, for both dwelling and contents insurance (figure 1.9). This reflects relatively benign weather, with no catastrophes approaching the scale of the 2023 flooding and cyclone events. This has resulted in lower aggregate claims volumes than the average levels observed over the past five years.

However, inflation in general insurance premiums remains above consumer price inflation. An increase in the Natural Hazards Commission levy would place additional upward pressure on insurance premiums. Insurers have continued to adopt more risk-based pricing of dwelling insurance. Rising premiums are gradually becoming less affordable for some policyholders.

More favourable conditions in global reinsurance markets contributed to slowing inflation in general insurance premiums. A stronger supply of capital in global reinsurance markets has helped to limit reinsurance costs for New Zealand insurers. This development highlights the key role of global reinsurance markets in mitigating our exposure to natural disasters (see Special Topic 2).

In contrast, growth in health insurance premiums is accelerating (figure 1.9). Health insurance premiums have increased around 19 percent over the past year, as health insurers face pressure from increasing claims costs. Capacity pressures in private healthcare services are pronounced. Deferred medical procedures following the COVID-19 pandemic and the stretched capacity of the public health system have contributed to a shift towards the private health system.

Growth in claims cost has resulted in health insurers generating operating losses. Insurers’ solvency positions remain above our requirements. However, further increases in claims costs could increase operating losses and exacerbate financial stress in the sector.

Improved data collection bolsters our effort to monitor cyber resilience

Our cyber resilience reporting requirements support the monitoring of cyber risks in the financial system. Analysis of data from our 2024 Cyber Capability survey shows that regulated entities are generally aligned with our guidance on cyber resilience, in terms of governance, capability building, information sharing, and the management of third-party risks (see Special Topic 3). Data collected from regulated entities and our collaboration with other domestic and Australian agencies will continue to inform our cyber risk monitoring and response.

Chapter 2: Special topics

This chapter covers topical issues relevant to financial stability in New Zealand.

In this Report, we cover the following:

1. Financial stress in the business sector
2. Reinsurance and financial stability
3. Cyber and operational resilience: Results of the 2024 Cyber Capability survey

Liquidity channel

The first channel is through business liquidity. Liquidity is about having enough cash, access to credit, or easily sold assets to cover short-term payments. Firms experiencing falling profitability may not have enough cash on hand to pay wages, tax, or suppliers.

Saving buffers built up during the pandemic have been depleted

During the COVID-19 pandemic, businesses generally benefited from fiscal support and low interest rates, which allowed them to build cash buffers. However, these buffers have been eroded over the past few years for small and medium businesses. Deposits for large firms have been more stable as a share of GDP (figure 1.4).

Where cash buffers have eroded, firms may rely on banks to provide working capital. Since the start of 2021, businesses have borrowed more through overdraft facilities. In our discussions with banks, they noted that smaller businesses, which have smaller balance sheets, have also had greater demand for working capital to meet ongoing cashflow pressures. However, larger firms, which have access to a wider range of funding sources, have also increased their use of overdraft facilities.

Cashflow pressures have eased for key indebted sectors

Debt levels differ across sectors. Businesses in the agriculture and commercial property sectors tend to be the most reliant on borrowing, reflecting the large upfront capital required in these industries. In other sectors, debt levels are generally lower and debt-servicing costs make up a smaller share of total expenses.

Lower interest rates and strong export prices over the past year have improved cashflow in the agriculture and commercial property sectors. The effective business lending rate has fallen from close to 8 percent to just below 6 percent, easing debt-servicing costs and supporting profitability, particularly in these sectors.

Aggregate business leverage has reduced since 2009 (figure 2.4). Business (including agriculture) credit has declined from 69 percent of GDP in 2009 to 46 percent. In particular, the dairy sector has significantly reduced its debt since 2015. Over the past decade, banks have maintained stronger lending standards, and business borrowers have become more resilient as a result.

Banks are reporting some signs of stress in their business loan portfolios

For struggling firms, banks (and credit rating agencies) may downgrade their credit risk ratings, leading to higher interest rates. We track the share of banks’ business lending to firms they assess as high credit risk — referred to as potentially stressed lending (figure 2.6).

This share has risen over the past two years, reflecting a gradual increase in business stress. The rise has been particularly pronounced for smaller businesses, while larger corporates have seen a more moderate increase. Stress in the commercial property sector increased earlier, when interest rates were especially high, but has since eased.

Asset values are holding up

Another risk arises when financial stress within a sector prompts widespread asset sales as firms attempt to reduce leverage. Such sales can push asset values down, further eroding equity and intensifying balance sheet pressures.

At present, we do not see this as a major concern. Asset values are most relevant for the agriculture and commercial property sectors, both of which have been performing relatively well. Commercial property prices fell as interest rates rose in 2022 and 2023, but have increased over the past year. Dairy farm prices, while volatile due to low turnover, have remained broadly stable (figure 2.7).

Despite rising stress, most firms continue to meet their loan obligations

Business NPLs have increased only moderately over the past two years (figure 2.8). Prudent lending standards and general deleveraging have helped keep NPL rates well below those seen during the Global Financial Crisis.

However, some industries are experiencing more pronounced increases. Manufacturing, accommodation and food services, and transport, postal and warehousing have seen the largest rises (figure 2.9).

The agriculture sector remains a relative bright spot

In contrast to the rise in most other sectors, NPLs in the agriculture sector have declined (figure 2.10). Elevated milk and beef prices, improving sheepmeat prices, and stabilising (albeit high) farm costs have supported strong financial returns for the rural sector. Lower interest rates and debt repayment have improved interest coverage ratios, bringing agriculture NPLs close to a 16-year low, particularly in the dairy industry.

However, the sector remains exposed to global and domestic risks. Rising geopolitical tensions could increase volatility in input costs and commodity prices, while dry weather in parts of the North Island has weighed on production for some farms. In addition, the meat-processing sector continues to struggle with excess capacity and low profitability. A key risk to the outlook that remains is the impact of tariffs on global demand.

Stress in weaker sectors could spill over to the broader economy and banks

The transmission of business stress to the financial system also depends on spillovers from weak sectors to the broader economy. As firms cut costs, the effects can spread to households and other businesses through job losses, higher unemployment, and reduced household incomes and spending.

Mortgage borrowers who rely on business income are particularly exposed to business stress. Centrix data shows that past-due mortgage rates among business owners have risen more than for wage and salary earners (figure 2.11).

Many firms have also delayed investment. In our discussions with banks, they noted that new business borrowing has largely been limited to working capital and minor upgrades, rather than large-scale investment or merger and acquisition activity. This restraint is flowing through to other sectors. For example, building consent data suggests that non-residential construction activity is softening.

Business conditions should gradually improve as the economy strengthens

Economic conditions are expected to improve as OCR cuts lift demand.¹⁴ There are some signs of demand increasing already. For example, retails sales volumes increased in the June quarter of this year.

Banks expect the non-performing share of commercial property loans to fall to a low level over 2026 and 2027 (figure 2.8). For other business loans, they expect the non-performing share to increase over the next couple of months before gradually decreasing also.

While this outlook is uncertain and conditions could deteriorate, overall risks to banks from business sector stress remain contained. This has been supported by prudent lending standards for some time. While banks may experience losses on some loans, they are in a strong position to manage and support customers.

Collective provisions, funds set aside to cover potential losses across groups of similar loans, remain elevated at or above the levels observed during the COVID-19 pandemic (figure 2.12). Individual provisions, which are targeted allowances for loans already showing signs of distress, are somewhat lower, indicating that relatively few business loans have deteriorated to the point of requiring specific recognition.

Lending is expected to remain subdued for the remainder of this year, driven by low demand, before increasing next year as economic activity picks up. We expect competition amongst banks to remain high as they look to extend lending to creditworthy businesses. Ongoing supply of credit is important to support the recovery in economic activity. Also, it is important for banks to maintain prudent lending standards so that borrowers remain resilient in future periods of financial stress.

2. Reinsurance and financial stability

Key points

• Reinsurance markets underpin New Zealanders’ access to many insurance products and support financial stability. They allow New Zealand insurers to transfer the cost of large risks to global capital markets, making cover for catastrophic events such as earthquakes economically viable.
• Global reinsurance markets are concentrated in a small number of large players, alongside many smaller reinsurers. Most of the large New Zealand general insurers obtain access to reinsurance through a joint scheme with their Australian parent insurer.
• Key drivers of global reinsurance capacity and pricing are the extent of recent large loss events and conditions in financial markets. These affect the amount of reinsurer capital and therefore supply of reinsurance.
• Shifts in risk perceptions and improved modelling over time also influence reinsurance terms and availability for different regions and types of events. For example, after the Canterbury earthquakes in 2010-11, global reinsurers reassessed the seismic risk profile of New Zealand, leading to a tightening in terms and rising reinsurance costs.
• The availability and cost of reinsurance are mostly driven by factors outside of New Zealand’s control, creating a channel for global developments to influence domestic financial stability.
• Several years of higher-than-expected claims costs culminated in a significant upward repricing of reinsurance globally over 2022 and 2023. These pressures have since abated, contributing to a moderation in reinsurance pricing over the past year, reducing inflation in general insurance premiums for New Zealand households and businesses.

Reinsurance indirectly affects most New Zealanders

Insurance plays an essential role in the financial system, supporting households and businesses by transferring risks that would otherwise be borne individually. New Zealand’s exposure to natural disasters such as earthquakes, floods, and cyclones makes insurance particularly important for supporting household and business economic resilience to these events.

A crucial but less visible element of the insurance industry is reinsurance. Reinsurance is insurance for insurers. It allows insurers to transfer part of the risks they take on from their customers to specialised global reinsurers. New Zealand insurers’ access to the global reinsurance market is a key contributor to financial stability. In turn, conditions in global reinsurance markets directly affect the cost of insurance premiums New Zealand customers pay.

This Special Topic outlines what reinsurance is, how insurers use it, and how it contributes to New Zealand’s financial stability.

Reinsurance is an important source of stability for New Zealand insurers

The primary role of reinsurance is to act as an efficient source of capital for domestic insurers. Under the Reserve Bank’s solvency requirements, insurers need to have sufficient capital reserves or reinsurance to cover their liabilities for a 1-in-1000-year seismic event. Reinsurance is a mechanism by which insurers can manage very large or volatile losses that may be difficult to absorb on their own.

An insurer cedes part of its premium income to a reinsurer in exchange for reimbursement if losses from a defined cause (e.g. earthquake, flood, storm) exceed an agreed financial threshold. This means that insurers can provide cost-effective cover for high-severity, low-frequency risks.

Without reinsurance, insurers would experience difficulty in attracting sufficient volumes of capital to cover catastrophe risks. If such capital could be raised, the cost of holding it would make policies significantly more expensive. In practice, this would force insurers to narrow coverage or lower policy limits. This, in turn, would shift more risk back onto households, businesses, and the Crown, weakening financial resilience.

Reinsurance can therefore be thought of as a shock absorber that spreads the financial impact of very large loss events across a much larger international pool of capital.

In New Zealand, general insurers are the most intensive users of reinsurance. They use reinsurance to manage their catastrophe exposures in their property insurance, motor vehicle, and other liability portfolios. Around one third of the gross written premium across general insurers’ commercial and personal lines is ceded to reinsurers.

The importance of reinsurance for general insurers in New Zealand reflects the high concentration of catastrophe risks relative to the scale and depth of the domestic economy and capital markets. Local insurers would likely struggle to provide sufficient coverage across the country to support their current insurance offerings without access to international risk-sharing arrangements.

Life insurers largely use reinsurance to support writing more business, especially new policies, than their own capital resources would otherwise permit.¹⁵ They also benefit from the technical expertise of global reinsurers. Life insurance risks are generally less volatile and less exposed to large, aggregated loss events than property risks. By contrast, health insurers in New Zealand make very limited use of reinsurance, largely because their claims patterns are steady and more predictable, reducing the need for external risk transfer.

Following a natural disaster, prompt claims payments are critical for enabling households to recover, for businesses to continue operating, and for the banking system to remain stable. By absorbing large loss events, reinsurers help local insurers to meet claims and avoid depleting their capital, meaning they can continue offering cover. This helps to avoid spillovers to the value of the property collateral that secures much of bank lending, and supports households’ and businesses’ wealth and economic activity. Reinsurance is therefore a key channel through which domestic financial stability is influenced by international capital markets.

The global reinsurance market is dominated by a small number of firms

The reinsurance industry is relatively concentrated with a handful of major firms playing a prominent role. Munich Re, Hannover Re, Swiss Re, Renaissance Re, and Berkshire Hathaway are among the largest, as well as the Lloyd’s market in London. Alongside these larger firms, there are many smaller reinsurers that contribute additional capacity to the market.

A small but growing supplement to the traditional reinsurance markets is through alternative capital providers, including hedge funds and pension funds, which offer catastrophe bonds or other instruments. In mid-2025 the traditional reinsurance market was estimated at USD 614 billion, with alternative markets at USD 121 billion.¹⁶

Reflecting the structure of the New Zealand general insurance market, many of the large New Zealand general insurers obtain reinsurance through joint schemes with their Australian parent insurer. New Zealand-specific risks are a material part of the trans-Tasman insurer groups’ decisions about reinsurance cover. Insurers commonly have several dozen or more reinsurers participating in their reinsurance programmes.

Global reinsurers view Australia and New Zealand as a small but attractive market. Natural catastrophe exposures are relatively high, though typically not correlated with risks in the Northern Hemisphere such as hurricanes and wildfires in North America, and windstorms in Europe. Underwriting Australasian risks can therefore allow global reinsurers to diversify risks. Furthermore, the Australian and New Zealand insurance markets are well developed with high coverage levels and mature modelling of risks.

Insurers have a range of options when designing their reinsurance programmes

Reinsurance programmes can be structured in different ways as insurers seek to balance costs, capital relief, and protection from very high losses.

Insurers use both proportional contracts, such as quota share arrangements, and non-proportional contracts, such as excess-of-loss cover. In proportional contracts, a fixed proportion of all premiums and claims is transferred to reinsurers (table 2.1). In non-proportional contracts, the insurer and reinsurers negotiate a structure that sets out limits for which party covers which portion of loss, across different loss events. A recent trend for Australasian insurers has been the popularity of multi-year arrangements, which helps to stabilise contract terms over time.

Improved modelling and data on natural hazards have also enabled the insurance industry to adopt more risk-based pricing of property insurance. Some examples of this are differentiating seismic risks by region, and flooding risks by property location (see Special Topic 2 in the May 2024 Report).¹⁷ Insurers that can demonstrate to their reinsurers that they have an improved understanding of the risks they are taking are able to obtain more favourable premiums and terms. This provides them with a competitive pricing edge, reinforcing the industry trend toward more detailed risk modelling.

The Natural Hazards Commission complements private insurers in accessing reinsurance

The Natural Hazards Commission (NHC) plays an important stabilising role in supporting New Zealanders’ access to insurance, by covering the first layer of losses to residential dwellings from natural disasters under its NHCover scheme.¹⁸ NHC runs its own reinsurance programme, with over $10 billion of coverage currently (figure 2.17). The scale of NHC’s reinsurance programme has grown as the extent of first loss protection under NHCover has increased in recent years. NHC effectively operates on behalf of New Zealand households to engage directly with global reinsurers, without the need for private insurers to act as intermediaries.

NHC helps to bring cost-effective additional reinsurance capital into New Zealand’s risk pool. Unlike private insurers, NHC is not subject to the Reserve Bank’s solvency capital rules, and it benefits from a Crown backstop. This means it can structure its reinsurance around very high-attachment, low-frequency layers of cover, which attract comparatively lower costs. In the current financial year, NHC’s reinsurance provides cover once an event’s claims exceed $2.2 billion. Private insurers instead buy reinsurance at much lower attachment points (often corresponding to 1-in-5 to 1-in-10-year events) to manage more frequent portfolio shocks.

This complementary layering means NHC’s reinsurance programme provides protection for residential dwelling losses only in particularly severe events, while private insurers focus on providing cover for residual risks not included in NHCover. Overall, this deepens reinsurance capacity and reduces costs for New Zealanders. The importance of NHC’s role was highlighted in our 2024 stress test of general insurers, where claims on NHC exceeded half of the scenario’s total losses.¹⁹

Conclusion

Reinsurance is a crucial part of the insurance industry’s ability to protect New Zealand households and businesses from large and catastrophic loss events. Reinsurance acts as an efficient source of capital that transfers risks to global markets and helps New Zealand to absorb shocks. This enables cover for risks that would otherwise be unaffordable, supporting financial stability and economic resilience. However, the availability and cost of reinsurance are also to a large extent driven by factors outside of New Zealand’s control, creating a channel through which global developments can impact New Zealanders.

Information sharing

A crucial component of a collective response to cyber threats is the sharing of information and how quickly it can be acted upon. In addition to providing insight into the cyber threat environment, it is also crucial for an entity to understand the adequacy of its cyber risk mitigation measures.

Most respondents reported established pathways for timely incident notification and participation in sector forums that support situational awareness, supporting fast, coordinated responses when incidents arise. Entities indicated they contribute to and draw from information-sharing arrangements to track evolving threats and good practice (figure 2.20).

Third-party management

Organisations generally rely on a multitude of third-party service providers (including related parties, such as parent companies or subsidiaries) to support core business functions.²³ It is common for these third-party entities to have access to an entity’s data and its internal systems. If used prudently, third-party services may reduce an entity’s cyber risk, especially for entities where in-house infrastructure may be prohibitively expensive. However, usage of third parties also provides an ideal environment for cyber criminals looking to infiltrate or disrupt an organisation.

The majority of institutions reported that they have appropriate oversight of critical service providers, which includes contractual obligations and incident reporting.²⁴ Effective documentation can support entities to identify external dependencies and areas of interconnection. However, a number of respondents (26 percent of all entities) reported they were partially meeting the baseline expectations set out in our Guidance for Documentation . This indicates that these entities do not fully maintain an up-to-date inventory of their third-party providers (figure 2.20). This could potentially expose gaps in third-party visibility that may hinder risk assessment, incident response, and concentration-risk management. 22 percent of respondents also reported they were partially meeting the baseline expectations for Termination , indicating that there is not a fully established termination/exit strategy in place. This may expose respondents to the risk of vendor lock-in should they need to change vendors for any reason.

Technology infrastructure can be vulnerable to disruption

Cyber threats target identity systems, shared service providers, and software supply chains, and can spread quickly across firms and sectors. Transformation risk comes from large change programmes such as core system replacement and modernisation where errors, bottlenecks, or sequencing issues can interrupt critical services and undermine confidence in the financial system.

Cyber threats are a key risk

Cyber risk remains elevated across the financial sector. The immediate effects are most visible in customer channels and payment processing. When recovery takes longer than expected, payment settlement can be delayed. Significantly prolonged disruption may impact entities’ liquidity buffers and, if uncertainty persists, can undermine confidence in the availability of core financial services.

Concentration in cloud, identity, and network services increases the chance of correlated disruption. A single fault, misconfiguration, or targeted attack at a common third-party provider can potentially affect multiple institutions at once, amplifying impact and complicating restoration plans. These knock-on effects illustrate the potential risk that third parties pose to an individual organisation, as well as the scale of interconnectedness through large vendors (see figure 2.21). 

Transformation risk is also key

Large change programmes such as core system replacement, payments modernisation, and cloud migration carry execution risk. If sequencing is imperfect or defects go undetected, disruptions can delay the work programme.

Customer and data migration are key stress points. Real-world demand and customer behaviour often differ from testing. Data problems can undermine accuracy, affecting how staff utilise information and the extent to which customers are able to use data. If a change needs to be reversed, this may lead to delays in the work programme and potentially reduce system stability. If instability persists, trust in key services may be affected.

Emerging technologies can heighten system risk and also present opportunities for innovation

As discussed in the previous Financial Stability Report , the use of AI remains at an exploratory stage across the financial sector.²⁵  Current developments are generally limited in scope but adoption is accelerating. AI can increase operational efficiency and enhance threat detection, but there are also associated risks.

Use of AI by third-party vendors increases the exposure of the financial industry to AI risks. This in turn increases the need for enhanced third-party risk management, especially given that many vendors are now incorporating some form of AI into their products for their customers.

When used by attackers, Generative AI (Gen AI) can be weaponised to mass-customise scams and spam messages. Additionally, Gen AI creates variation in malware development so each iteration may look different when used in an attack. This can complicate detection controls that rely on fixed patterns.

Governance oversight remains central to adopting AI, especially in relation to how data are used and managed. AI tools perform only as well as the data they are trained on and the prompts they receive. Therefore, controls that protect data quality and prevent loss are fundamental to adoption of AI. Human oversight is an equally critical safeguard. Material AI-enabled decisions must be reviewable and subject to effective controls. Where tools are developed and run externally, entities depend on the vendor’s design choices and safeguards. Where tools are developed in-house, outcomes depend on the institution’s own controls and data quality.

This is fast-moving field. Capabilities are evolving quickly, many services are global in nature, and the balance of benefits and risk continue to shift.

Managing cyber and operational risks is critical to the resilience of the financial system

Our approach combines setting clear expectations across the sector with direct engagement with individual entities. To that end, we are working to formalise our expectations for the management of cyber- and technology-related risk.

As a part of implementation of the Deposit Takers Act 2023, we will issue an Operational Resilience Standard which will set requirements for how deposit takers manage their Information and Communication Technology (ICT) risk. The Government also intends to amend the Insurance (Prudential Supervision) Act 2010 to provide the Reserve Bank the ability to issue standards, including relating to risk management (comprising policies and processes for specific risks).

By working alongside regulated entities, we aim to build capability, support effective governance, and encourage ongoing investment in cyber and operational resilience. Where appropriate, entity-specific engagement helps ensure that all firms, regardless of size or maturity, continue to develop the skills, systems, and practices needed to withstand evolving threats and maintain confidence in the financial system.

Collaboration

Effective supervision of cyber risk in the financial sector contributes directly to financial stability. We have been working closely with domestic and international regulators and government agencies, alongside industry, to support preparedness for collective responses to future cyber incidents in the financial sector. We expect to strengthen these relationships further throughout 2025/26, both bilaterally and via regular attendance at industry forums.

In particular, we place strong emphasis on partnering with the Council of Financial Regulators, recognising the importance of sharing insights to enhance the cyber resilience of the financial system. The work programme also extends to the Trans-Tasman Council on Banking Supervision, which facilitates cross-border collaboration across New Zealand and Australia. On a day-to-day basis, we continue to work closely alongside our counterparts at the Financial Markets Authority and the National Cyber Security Centre to exchange intelligence on emerging sectoral patterns, agree key focus areas, and identify opportunities to collaborate both on a business-as-usual basis and during live incidents.

Our guidelines provide a robust and consistent framework to support policy teams in identifying and assessing competition impacts early in the policy development process. This in turn helps us to explore, where appropriate, alternative ways of achieving regulatory objectives while also enabling better outcomes for competition.

We are consulting on the use of the term ‘bank’

Before the DTA comes into force, we are required to set out our policy on the use of restricted words. The DTA will permit us to authorise entities to use ‘bank’ or ‘banking’ in a name or title. We are currently consulting on proposals for who should be authorised to use these restricted words. This consultation is open for submissions until 24 November 2025.

As part of moving to a single regulatory regime under the DTA, we are also proposing to authorise all licensed deposit takers to be able to use restricted words in their name or title. This will support competition within the deposit-taking sector by treating similar institutions consistently.

We are also proposing to continue authorising certain overseas banks to carry on limited activities in New Zealand using restricted words in their name or title, provided that these banks do not have a physical presence in New Zealand.

After considering the consultation responses, we will announce final policy decisions in 2026.

We are consulting on regulations related to the regulatory perimeter

These regulations under the DTA seek to clarify the boundary of the regulatory perimeter. This defines the types of entities that are subject to regulation, before licensing of deposit takers commences. The licensing period is currently expected to begin on 1 June 2027.

If implemented, proposals would have the effect of maintaining the current prudential perimeter under the Non-Bank Deposit Takers Act 2013 (NBDT Act) and the Banking (Prudential Supervision) Act 1989. This would be achieved through excluding from regulation under the DTA:

• the same classes of entities that have been declared not to be an NBDT for the purposes of the NBDT Act, if they would otherwise meet the definition of ‘deposit taker’; and
• overseas banks that have no physical place of business in New Zealand.

We are not proposing to expand the regulatory perimeter to include any additional classes of entities. We discuss but do not propose the possibility of excluding some smaller entities that are undertaking borrowing and lending from being required to license.

Feedback is also sought on three minor proposals that are required for the smooth implementation of the DTA. These relate to the definition of an Australian Financial Authority, classes of lending that the Lending Standard applies to (e.g. macro-prudential tools), and the form of infringement and reminder notices.

This consultation is open for submissions until 24 November 2025.

The exposure drafts of the new DTA standards will be consulted on in three tranches

We are developing standards under the DTA containing requirements that deposit takers must comply with as part of their prudential obligations. The next stage for the DTA standards is the exposure draft consultation phase. This is an opportunity to test whether the policy consulted on previously is being implemented correctly and for feedback on more detailed policy questions. We will consult on both exposure drafts of the standards and supporting guidance (where relevant).

We will consult on the exposure draft of the standards in three tranches (figure 3.3). This will more evenly split up the consultation material to better spread the engagement load on industry, and, following the review of key capital settings, allow us more time to draft the standards. Tranche 1 will be consulted on from October 2025 to January 2026, and will include the Liquidity, Depositor Compensation Scheme (DCS), Lending and Incorporation (Outside New Zealand) standards. We will also consult on our Group Supervision Policy as part of this process.

We intend to issue the DTA standards in May 2027 and commence the standards from December 2028.

We continue to monitor the industry through prudential supervision as well as targeted stress testing and thematics
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Relationship Charter Survey

The Relationship Charter sets out principles for maintaining the best regulator-regulated relationships possible, and commits the Reserve Bank and the financial sector to a mutual understanding of how both parties will work together to achieve this. In this year’s Relationship Charter Survey, 97 percent of regulated entities rated their relationship with the Reserve Bank as ‘good’ or ‘very good’. Half of the stakeholders highlighted our communication as a key strength. We will consider the valuable suggestions about how we could do things better and make changes where appropriate.

Licensing of banks and NBDTs under the Deposit Takers Act

There will be an 18-month licensing window for existing banks and NBDTs from 1 June 2027 to 1 December 2028. Entities will need to demonstrate they have the ability to meet the requirements of the core DTA standards to be granted a licence under the DTA. The licensing framework we implement to obtain and assess information from banks and NBDTs will be tailored to suit the 18-month timeframe. Whilst the assessment of licence applications for existing firms will consider the full range of matters which banks and NBDTs will need to comply with under the core standards, the focus will be on the changes to existing regulation being brought in by the core DTA standards.

Banks and NBDTs are already engaging with us in preparation for the DTA. We will provide further details about licensing throughout the process.

Stress-testing programme

The 2025 bank solvency stress test included two scenarios to enable us to assess bank and system resilience to geopolitical shocks. The stress test also had a third scenario, which tested banks’ ability to manage a failure in their current transformation plans. The five largest banks participated and have used the results from these scenarios to inform and improve their capital management and contingency funding plans. We are considering repeating parts of the exercise for small banks next year, recognising their more limited resourcing. A Bulletin article with the findings from the 2025 bank solvency stress test was recently published.³⁰

In 2026 we will conduct a Life and Health Insurance stress test involving eight of the largest entities. This will be a Reverse Stress Test, where each insurer is required to determine a severe but plausible scenario which reduces their solvency below zero before significant management actions. The instructions for entities are expected to be finalised this year, with submissions due by the end of June 2026.

Risk management thematic

Our thematic review on risk management practices in the deposit-taking sector is progressing well. We recently completed engagements with relevant staff and board members of participating entities, and are now in the final analysis phase. The engagements were informative and provided valuable insights into each entity’s overall approach to managing risk.

The review will enhance our understanding of industry practice, identify areas for improvement, and promote the sharing of good practices that will help uplift risk management capability in the sector. Insights from the review will also inform the development of guidance for the risk management standard under the DTA. We expect to publish our thematic report and provide feedback to participating entities in early 2026.

The next thematic review will focus on the risk management practices of general insurers and is likely to commence in February 2026.

In this role, the treasury also centralises the management of interest, funding, and liquidity risks. For example, many borrowers like to gain interest rate and cashflow certainty by fixing their interest rate. From a bank’s perspective, being on the other side of a fixed-rate loan means they are open to interest rate risk, which can leave them exposed to economic gains or losses if market interest rates move unexpectedly.

Each business unit is charged appropriately for the funds they use, or credited for the funds they provide, meaning that they have a more stable view of the margin they contribute to the bank. This frees up business units to focus on objectives like portfolio growth and market share.

How a bank estimates its cost of funds

To determine the cost to the bank of funding at different time horizons, a bank takes several steps to construct an internal funding cost curve as part of its FTP methodology:

• Setting a base rate: creating an interest rate curve that provides a foundation view of interest rates at different repricing terms. New Zealand’s major banks’ loan portfolios are larger than their deposit portfolios, meaning wholesale funding is used to close this gap. Typically, they use wholesale interest rates such as the OCR and interest rate swap rates at different maturities as funding cost benchmarks, since these reflect the opportunity cost of creating new loans or taking in new deposits.
• Incorporating additional funding premiums: adjusting the base rate curve to account for deposit stability, loan duration, and the bank’s own credit risk premium. A bank typically pays a credit risk premium above the swap rate when sourcing funds in wholesale markets, and a term premium for longer duration funding. A corresponding amount is added for different loan and deposit offerings based on their expected duration.
• Adding liquidity costs: some types of funding can be withdrawn at short notice. Similarly, loan facilities that customers can draw down on at a future date generate liquidity risks for the bank. To manage liquidity risks, banks hold a buffer of liquid assets. These assets typically earn less interest than loans. Therefore, the FTP framework assigns a higher cost to funding and lending offerings with greater liquidity needs.

The exact FTP methodologies that banks use varies, depending on the complexity and nature of their business models. Smaller New Zealand banks often have simple business models that don’t rely as much on wholesale funding. When setting interest rates, they may find it more appropriate to use average deposit costs rather than a wholesale market funding curve with risk adjustments.

While setting the base rates is relatively straightforward, and based on objective metrics like wholesale interest rates, there is a larger role for discretion and judgement in the other parts of the FTP methodology.

Moving from the internal transfer price to the customer interest rate

Once it has constructed an internal funding cost curve, a bank will use this to determine the appropriate cost for different loan and deposit offerings. To calculate a home loan rate, for example, the bank treasury will assign a loan transfer price at the appropriate term on the internal funding cost curve to the home lending business unit.³³

Starting from the transfer price, the home loan business unit will add allowances for:

• Expected losses: the bank expects a small proportion of loans to incur losses in any given year, which is accounted for through pricing.
• Capital charges: capital enables the bank to absorb large but infrequent unexpected credit losses. The bank needs to fund a portion of its lending with capital (e.g. equity) to meet its regulatory capital requirements set by the Reserve Bank. The amount of capital depends on the riskiness of the lending.
• Operating costs: the cost of systems and people needed to create and manage the loan.

The difference between the final customer rate that the bank charges and the sum of these components represents the profit that the lending business unit is contributing to the bank as a whole (figure A.2).

On the funding side, the bank treasury will assign transfer prices to deposit-gathering business units to compare the interest rates paid on each type of deposit. The transfer prices reflect the value of the funds they receive. For example, a 6-month term deposit rate offered using the FTP methodology will be based on the internal funding cost curve, adjusted for the expected maturity of the deposit. Typically, deposits are a very stable source of funding for banks, and so the average maturity of deposits is often longer than their contractual maturity. For instance, a bank may assume that an on-call or 6-month term deposit will in practice have an average maturity of 2 to 3 years.

To calculate the deposit rate paid to customers, the deposit-gathering unit then deducts operating costs, and the profit that the deposit-gathering business unit is contributing to the bank from the transfer price (figure A.2).

Some deposits, such as transaction accounts, pay minimal or no interest. As a result, they provide funding for much less than the transfer price, creating an important source of profit for many banks. Transaction balances represent around 18 percent of total bank funding currently. Changes in interest rates would result in volatility in banks’ profitability from these types of deposits as the OCR changes. Banks use hedging strategies to smooth out these changes in profitability over OCR cycles (see Chapter 4).

The FTP framework provides different business units with neutral and clear pricing signals, which then allows them to set deposit and loan interest rate offerings in the market based on factors like market share ambition and desired profitability. In turn, by centralising liquidity and interest rate risks, FTP gives the bank’s management a more objective measure of each unit’s contribution to the bank’s overall profitability.

Adjustments and risks with funds transfer pricing

Banks in New Zealand each have their own FTP methodologies, and these can be adjusted over time depending on macroeconomic conditions or specific business goals. Banks continuously assess their FTP methodologies to ensure that appropriate pricing signals are being sent to business units, and apply adjustments based on judgement to achieve their strategic objectives.

For instance, during the period of monetary policy tightening between 2021 and 2023, wholesale interest rates rose significantly faster than deposit rates (figure A.3). At this time banks were able to maintain relatively lower term and savings deposit rates, improving the profitability of these products from an FTP perspective. This reflected conditions of an abundant supply of deposits compared to demand (a consequence of the higher COVID-level period of savings, higher levels of liquidity, and weakening credit demand).

The impact of this development on margins would have depended on the nature of each bank’s FTP framework. Banks whose FTP frameworks closely aligned their internal funding cost curve with wholesale interest rates would have seen their loan margins decline during this time as the spread between lending rates and wholesale rates narrowed. In contrast, those banks whose methodologies put more weight on actual deposit costs would have seen less change in their loan margins. Such differences in FTP methodologies would influence how profitable a bank sees their loan book at a point in time, and how hard they compete with one another on loan pricing and for market share.

In addition to responding to macroeconomic developments, banks can use their FTP methodologies to tilt the composition of their balance sheet over time. For example, adjustments to pricing of the different components can be used to encourage longer-term deposits, assign higher costs for a bank’s liquid asset holdings, or to enhance the competitive position of specific business units for strategic purposes.

Footnotes

¹  See the IMF’s October 2025 Global Financial Stability Report, available at https://www.imf.org/en/Publications/GFSR/Issues/2025/10/14/global-financial-stability-report-october-2025

²  See Special Topic 2 in the May 2025 Monetary Policy Statement, available at https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/monetary-policy-statements/2025/may-0525/mps_report_may2025.pdf

³  See Chapter 1 in the IMF’s October 2025 Global Financial Stability Report, available at https://www.imf.org/en/Publications/GFSR/Issues/2025/10/14/global-financial-stability-report-october-2025.

⁴  See Box B in the August 2025 Monetary Policy Statement, available at https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/monetary-policy-statements/2025/aug-20825/mps-report-aug-2025.pdf.

⁵  See https://www.rbnz.govt.nz/hub/publications/bulletin/2025/2025-bank-industry-solvency-stress-test-results.

⁶  See Box B in the May 2025 Financial Stability Report, available at https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/financial-stability-reports/2025/may/financial-stability-report-may-2025.pdf.

⁷  Non-performing loans are those that are at least 90 days in arrears or considered impaired by banks.

⁸  See https://www.rbnz.govt.nz/hub/news/2025/10/reserve-bank-to-ease-lvr-restrictions.

⁹  The speed limit sets a cap on the share of lending above a specified LVR threshold that a bank can provide.

¹⁰  See https://www.rbnz.govt.nz/hub/news/2025/08/rbnz-invites-feedback-on-review-of-capital-requirements-for-deposit-takers.

¹¹  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/regulation-and-supervision/dta-and-dcs/competition-assessment-guidelines-for-prudential-policy.pdf.

¹²  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/statistics/series/c/c60/credit-conditions-survey-september-2025.pdf.

¹³  See Centrix Credit Indicator Report – September 2025 available at https://www.centrix.co.nz/wp-content/uploads/2025/10/Centrix-Credit-Indicator-Report-September-2025_Web.pdf.

¹⁴  See https://www.rbnz.govt.nz/hub/publications/monetary-policy-statement/2025/aug-08hgf/monetary-policy-statement-august-2025.

¹⁵  For new policies, it takes time for life insurers to accumulate sufficient revenue to cover the initial reserving and acquisition costs.

¹⁶  See https://www.aon.com/en/insights/reports/reinsurance-market-dynamics.

¹⁷  See https://www.rbnz.govt.nz/hub/publications/financial-stability-report/2024/may-2024/fsr-may-24-special-topic-2.

¹⁸  NHCover is a first loss scheme, meaning that it covers the first $300,000 (plus GST) of any natural hazard losses covered under the Natural Hazards Insurance Act 2023.

¹⁹  See https://www.rbnz.govt.nz/hub/publications/bulletin/2025/2024-general-insurance-industry-stress-test-results.

²⁰  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/consultations/cyber-resilience/guidance-on-cyber-resilience.pdf.

²¹  See https://www.rbnz.govt.nz/regulation-and-supervision/cross-sector-oversight/improving-cyber-resilience-for-regular-entities.

²²  Large entities are defined as those with total gross assets of at least $2 billion.

²³ This is addressed further in our BS11 Outsourcing Policy https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/regulation-and-supervision/banks/banking-supervision-handbook/bs11-sept-2022.pdf.

²⁴  A critical service provider is a person or entity that provides any activity, function, process, or service that, if lost (even for a short period of time), would materially affect the continued operation of an entity, the market it serves, and the broader financial system. Such a loss could also materially affect the data integrity and reputation of an entity, and confidence in the financial system.

²⁵  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/financial-stability-reports/2025/may/special-topic_rise-of-the-machine.pdf.

²⁶  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/financial-stability-reports/2025/may/special-topic_rise-of-the-machine.pdf.

²⁷  See https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-insurers/how-we-regulate-and-supervise-insurers/our-policy-work-for-insurer-oversight/review-of-insurance-prudential-supervision-act-2010.

²⁸  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/consultations/banks/fsap/fsap-review-assessment-of-observance-insurance-core-principles-2017.pdf.

²⁹  See https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/regulation-and-supervision/insurers/cbl-rbnz-final-report.pdf.

³⁰  See https://www.rbnz.govt.nz/hub/publications/bulletin/2025/2025-bank-industry-solvency-stress-test-results.

³¹ See https://www.rbnz.govt.nz/hub/publications/bulletin/2025/2025-bank-industry-solvency-stress-test-results.

³²  We collect system availability and cyber incident data for four of the five designated FMIs. The exact definition of system availability differs depending on both the type of system and its hours of operation.

³³  Typically, banks use an assumed behavioural maturity for a loan, rather than the legal contractual maturity. A home loan with an initial contractual maturity of 30 years will on average tend to mature well before this, typically within 5 to 10 years. This happens for a variety of reasons, including accelerated principal repayments, or the loan being restructured when the borrower sells their home to purchase another one.

³⁴  See the RBNZ Bulletin article How risk weights affect bank lending for further discussion on the role of risk weights and regulatory capital requirements in banks’ lending decisions.

³⁵  Commonly New Zealand banks use interest rate swaps to convert their stable zero-interest deposit funding into a “replicating portfolio” that mimics a more market-sensitive funding structure. Instead of treating these deposits as zero-interest, zero-duration liabilities, banks construct a replicating portfolio of interest rate swaps with staggered maturities, for example dividing the value of these deposits into a 5-year rolling portfolio, with 1/60th of the portfolio maturing every month. The FTP framework can incorporate the replicating portfolio by assigning a transfer price to the deposits that is equivalent to a 5-year funding instrument.