The Reserve Bank of New Zealand released its Financial Stability Report in November 2025. The report evaluates the strength of the country’s financial system, highlights present and emerging risks, and outlines the steps the central bank plans to take to maintain economic and financial stability. The report sends a strong message: New Zealand’s financial system remains resilient, but global and domestic risks continue to grow and demand serious attention.
1. Financial System Remains Strong, But Risks Grow
The RBNZ describes the financial system as stable and capable of handling shocks. Banks hold high capital and liquidity levels, and the payments system operates smoothly. However, risk levels increased compared to previous years.
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Global factors such as geopolitical tensions, declining global trade cooperation, and rising government debt in developed countries pressure financial markets.
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Domestically, the economy shows signs of fatigue. Households face stretched budgets, retail and hospitality businesses struggle with low profits, and housing demand remains weak.
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Business loan defaults increased, but banks still manage to absorb the losses because of strong balance sheets.
The RBNZ insists on caution. The financial system can absorb shocks today, but risks grow and demand alertness.
2. Banking Sector Holds Strong Ground
The report places strong emphasis on the banking system.
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Banks hold capital ratios above international standards.
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Liquidity buffers remain solid and give banks the strength to handle funding stress.
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A recent stress test simulated a severe global recession caused by geopolitical conflict. Major banks handled the scenario without collapsing.
Households also show better financial stability. Lower interest rates reduced mortgage repayment pressure. Mortgage defaults declined, and more borrowers can meet their repayment schedules. The RBNZ acknowledges these improvements, but it continues to monitor inflation, unemployment trends, and house price movements closely.
3. Housing Market Shows Weak Demand
The housing market remains one of the most critical areas of concern.
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House prices have barely moved for three years.
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New buyers hesitate because of high prices, slow wage growth, and economic uncertainty.
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Construction companies face reduced demand and higher costs.
To support homebuyers, the RBNZ plans to ease loan-to-value ratio (LVR) restrictions from December 2025. The decision will allow banks to lend more to buyers with smaller deposits. The central bank expects a small boost in housing activity, not a major rebound, because interest rates and economic confidence still influence buyer decisions more than lending rules.
4. Business Sector Faces Uneven Pressure
The RBNZ identifies a clear divide in the business sector.
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Hospitality, retail, and tourism businesses report lower profits because consumers spend less on non-essential products and services.
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Many businesses cut investments and delay expansion plans.
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Business loan defaults rise, but the levels still remain below historical highs.
Agriculture tells a different story. Farmers benefit from strong global demand, high export prices, and lower debt. However, the RBNZ warns about risks from international trade disputes, climate events, and fluctuating commodity prices.
5. Insurance and Reinsurance Systems Matter More Than Ever
New Zealand depends strongly on global reinsurance markets to handle natural disaster risks like earthquakes, cyclones, and floods. Reinsurance companies from overseas provide financial support to local insurers after disasters.
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The report notes reduced pressure on reinsurance premiums in 2025.
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Insurance companies now pay lower costs compared to previous years.
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The central bank warns about the dangers of dependence on global reinsurers. If international reinsurers face financial stress, New Zealand’s insurers may struggle to provide full coverage.
Insurance risks do not only affect insurers. Any large-scale disaster can place pressure on banks, property values, and public finances.
6. RBNZ’s Regulatory and Policy Agenda
The RBNZ commits to strong regulation and proactive supervision. It outlines several major priorities:
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The central bank continues to review capital requirements for banks and deposit takers. Final decisions will arrive by the end of 2025.
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It increases focus on cyber security. Banks and financial institutions must improve their cyber resilience to prevent data breaches and service interruptions.
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It works on strengthening financial market infrastructure. This includes payment systems, settlement systems, and clearing houses that handle daily financial transactions.
The RBNZ aims to maintain confidence across the financial system and ensure firms follow strong risk management practices.
7. Implications for Markets and the NZ Dollar (NZD)
The report influences traders, investors, and financial markets in several ways:
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Slower credit growth and weak economic activity could keep interest rates low for longer.
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Lower interest rates reduce returns on New Zealand bonds and can weaken the New Zealand dollar.
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Global uncertainty pushes investors toward safe-haven currencies like the US Dollar, Japanese Yen, or Swiss Franc.
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The RBNZ’s cautious tone confirms that the central bank will not rush to raise interest rates unless inflation rises or financial stress drops.
The foreign exchange market reacts strongly to tone, confidence, and future policy expectations. Traders should monitor RBNZ statements, inflation trends, job data, and global commodity prices to anticipate NZD movements.
8. Key Areas to Watch Going Forward
The report highlights several areas that demand close monitoring:
| Area | Why It Matters |
|---|---|
| Bank Capital Decision | It will influence lending, profitability, and financial stability. |
| Housing Demand | It affects household wealth, construction activity, and mortgage defaults. |
| Business Loan Defaults | A sharp increase can weaken bank balance sheets and investor confidence. |
| Global Trade Tensions | They influence export revenues, the NZD, and economic growth. |
| Reinsurance Capacity | Insurance costs and disaster recovery depend on it. |
| Cyber Security Risks | A cyber attack can disrupt financial services and damage trust. |
9. Final Thoughts
The RBNZ delivers a balanced message. The financial system stands firm, and banks sit on strong capital reserves. However, the economic environment demands caution. Global volatility, sector-specific weaknesses, and slow domestic growth create pressure points that can intensify without warning.
The report encourages preparedness, not fear. It urges banks, investors, policymakers, and households to stay informed, reduce risky decisions, and strengthen resilience.
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