The comments come nearly two months after the collapse of the US-based Silicon Valley Bank
Banks in New Zealand have relatively little interest rate risk, according to the Reserve Bank of New Zealand.
Interest rate risk is due to fluctuations in the value of banks’ assets and liabilities as interest rates change, which can expose banks to losses and impact their capital positions.
RBNZ has hiked its official cash rate by 500 basis points since October 2021, in its most aggressive tightening streak since the OCR was introduced in 1999.
New Zealand banks “manage this risk by matching the repricing profile of their assets and liabilities, and by using financial products to hedge any differences,” RBNZ said in a statement. “They are also required to hold sufficient capital to cover potential losses arising from any remaining interest rate risk, which incentivises banks to carefully manage the risk.”
The comments come nearly a couple of months after the high-profile collapse of Silicon Valley Bank in the US, which according to RBNZ, highlighted “how quickly concerns over risk management can undermine depositor confidence in an entity and the banking system as a whole,” which in turn, “can potentially lead to increased deposit outflows, and in extreme scenarios, can contribute to a bank run.”
RBNZ will release its full May 2023 Financial Stability Report on May 3.
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