KEY POINTS:
The New Zealand financial system remains fundamentally sound and is working well despite high profile meltdowns of several finance firms, says the Reserve Bank.
Speaking to an Auckland business audience today the bank's head of prudential supervision Toby Fiennes said it was important to keep a "sense of perspective" over the recent failures.
Since the start of 2006 about 30 finance firms, funds, or mortgage trusts have collapsed or defaulted following a plummet in confidence in the sector as a result of the international credit crunch.
That has sparked fears that shockwaves from the dramatic collapse of the United States housing market could eventually spill over into New Zealand's mainstream banking industry.
But Fiennes said although troubles in the finance sector had stung individual investors their impact on the wider banking sector and the economy was limited.
"The majority of institutions, accounting for over 90 per cent of household financial assets, are not directly affected by these current events.
"These institutions are well capitalised businesses and give no apparent reason for concern."
Fiennes said many of the failures arose from a downturn in the property development sector where investors had "taken on significant risk for a return that was only slightly better than bank deposit rates".
"Our banks are navigating their way through the current turmoil well. Capital positions are well above the minimum levels required by regulation."
He said credit ratings remained strong and loss provisioning was fairly normal.
However the bank was keeping a close watch on the situation and was in regular contact with key industry players and other regulatory authorities.
As a precaution the bank had also put in place a facility where it would accept residential mortgage-backed securities as collateral for cash - giving institutions an additional funding avenue.
"This facility, like those used by other central banks, has been designed in case the global credit markets deteriorate further and make cash difficult to access, but the likelihood of this being needed remains extremely low," Fiennes said.
- NZPA
