Cash (notes and coins)

Total assets	614118
Liabilities and Equity
Deposits (net)	394003	64.2
Debt securities (net)	114336	18.6
Borrowings (net)	31003	5.0
Derivatives in a liability position	20970	3.4
Other liabilities	6795	1.1
Total equity	47011	7.7
Total liabilities and equity	614118

About 63 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 13 percent of total lending, of which the dairy sector accounts for about two thirds. Lending to the business sector accounts for 24 percent of total bank lending, around 37 percent of which is property related.

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 under half of this at maturities of less than one year. Around 24 percent of non-equity funding is from the wholesale market.

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.

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The majority of bank funding is short term (figure 6), with around 84 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 61 percent of lending is mortgages, at terms of up to thirty years. However, these assets have a relatively short time to re-price. Around 13 percent of mortgage loans are floating, and 59 percent are fixed loans due to be re-priced within one year (figure 7). Only about 5 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.

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 $169 billion, while the domestic bond market is around $145 billion (excluding government debt). The managed fund industry is also small compared to banks, with around $160 billion of assets under management.

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