RBNZ Warns Banks’ Ability to Absorb Shocks ‘Is Not Unlimited’

New Zealand’s central bank warned that the coronavirus pandemic presents a significant challenge to the country’s financial institutions, which could be stressed by failing businesses and loan defaults, Bloomberg News reported. While the financial system entered the crisis in good shape, “it’s capacity to absorb shocks is not unlimited,” the Reserve Bank said in its semi-annual Financial Stability Report published Wednesday in Wellington. “Covid-19 has caused a fundamental change to the viability of businesses in many sectors of the economy and credit impairments will rise significantly,” the RBNZ said. “Initial results from stress tests suggest banks will be able to absorb losses associated with a broad range of adverse scenarios. However, there are limits to this resilience, and banks’ capital positions could come under stress if the downturn in economic activity is more severe or prolonged than expected.” Read more

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