Category: Finance

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) has released its first voluntary Climate-related Disclosure – Ngā Whakapuaki e Pā ana ki te Āhuarangi for FY2023/24, outlining our progress in understanding, monitoring, and managing climate-related risks.

Source: Reserve Bank of New Zealand

Director of Financial Stability Assessment & Strategy Kerry Watt says each year we run stress tests to assess banks’ resilience. The key stress-test for New Zealand’s five largest banks in 2023 featured a scenario called ‘Too Little Too Late’ that tested their ability to withstand severe but plausible long-term climate-related challenges.

“We deliberately designed the climate stress test scenario to be challenging. It included high physical and transition risks over a prolonged period of 28 years. Our aim was to assess the financial impact of the scenario on the banks’ balance sheets and uplift their capability in managing climate related risks,” Mr Watt says.

“The results show that the Too Little Too Late’ scenario did not threaten bank solvency, as all banks were able to maintain their capital ratios. However, it did highlight that climate-related risks have the potential to significantly reduce bank profitability, raise risk-weighted assets and reduce shareholders’ returns over the medium to long term. This tells us that climate related risks need to be actively managed to protect the resilience of the system to other shocks.

“The stress test also improved banks’ capability in managing climate-related risks in several areas. These include modelling, sourcing of climate relevant data, informing insurance retreat impacts, embedding climate expertise widely across the organisation and identifying strategic actions to mitigate the risks.”

We have released a number of recommendations with our findings that include banks addressing significant remaining data gaps, continuing the development of credit risk modelling using climate-risk variables, and considering cost-effective ways of tracking the insurance status of mortgages. We expect all banks to reflect on these recommendations and are considering how we might support banks that did not participate in this stress test to incorporate them into their risk monitoring and management activity.

“It’s important to recognise the Too Little Too Late scenario represents only one way New Zealand’s climate scenario could play out. Banks will consider others as part of their own internal risk management and to feed into mandatory climate-related disclosures. We would like to express our thanks to the banks that participated.”

The Reserve Bank will continue to play an active role in monitoring this work undertaken by entities as they draw on the learnings from our stress testing activities, our guidance on managing climate-related risks, and related supervisory discussions. 

Questions and answers

Source: Reserve Bank of New Zealand

Two new members of the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC), Carl Hansen and Professor Prasanna Gai have been appointed by the Minister of Finance, Nicola Willis, on the recommendation of the RBNZ’s Board.

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand – Te Pūtea Matua has published Guidance for our regulated entities on managing climate-related risks. This follows our consultation on draft Guidance in March 2023 and is one of the actions set for us in the National Adaptation Plan.

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand’s 2019 Capital Review focused on improving the quality and quantity of bank capital to make the banking system safer for New Zealanders and to ensure that bank owners have a meaningful stake in their businesses.

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand – Te Pūtea Matua has issued a formal warning to Citibank N.A. New Zealand Branch (Citibank NZ) relating to the wire transfer identity requirements under the Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Act 2009.

Source: Reserve Bank of New Zealand

Advanced economies’ financial systems have been largely resilient to risks arising from higher interest rates so far. However, the full impact is still to be seen and some areas of concern are emerging, according to an extract from the upcoming Reserve Bank of New Zealand – Te Pūtea Matua Financial Stability Report.

Source: Reserve Bank of New Zealand

A cross-sector thematic review of regulated entities’ governance practices by the Reserve Bank of New Zealand (RBNZ) – Te Pūtea Matua and the Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko has highlighted the need for boards to be focused on continuous improvement to ensure future success.

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand – Te Pūtea Matua has completed a review of its Connected Exposures policy, which included two rounds of public consultation. The finalised policy has now been published and is expected to come into effect on 1 October 2023.

Source: Reserve Bank of New Zealand

The Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) has published the results of its first life insurance industry stress test (LIIST). The 2022/23 LIIST demonstrates the largest insurers in the sector are well placed to withstand severe economic and insurance shocks, while continuing to pay out on policy claims.