KEY POINTS:
A lack of depth and breadth in New Zealand's capital markets is limiting economic growth and leaving the economy more vulnerable to crises, Reserve Bank Governor Alan Bollard says.
This country's capital markets were relatively small, he told the Canterbury Employers' Chamber of Commerce in Christchurch today.
"Very few New Zealand dollar corporate bonds or securities are issued by local businesses, and New Zealand's stock market is small relative to the size of its economy," Dr Bollard said.
Direct and indirect holdings of equity by New Zealand households appeared to be relatively low by global standards.
Firms relied too heavily on debt financing, which could constrain their flexibility, development and innovation.
In many other economies firms relied on some combination of external equity and debt for financing, he said.
Limited capital market product and service innovation was probably due to the fact that government and larger businesses had been net savers in recent years, while the household sector had been a heavy net borrower.
While banks delivered basic banking services in this country reasonably efficiently, businesses and investors could not easily access some financial services onshore, Dr Bollard said.
This country's economic performance could potentially be raised if its capital markets were wider and deeper, the performance of the non-bank financial sector was enhanced, and the total pool of financial savings and financial literacy were raised.
"The New Zealand market is too dominated by bank debt and derivative markets, and its domestic capital market is too small," he said.
The more means by which savings could be channelled into capital investment by firms, then the more back-up there was if any single channel failed.
Ways in which improvements could be made included more effective regulatory arrangements now being considered, Dr Bollard said.
Others were a better understanding of some of the outcomes of the current tax environment, the promotion of deeper and more liquid bond markets, and through improved financial literacy.
Improvements would also come from financial innovation and the necessary recovery of private savings.
- NZPA
