Central bank explores new techniques
The Reserve Bank has published two new analytical notes aimed at enhancing the monitoring of financial stability through innovative models and data sources.
Using news sentiment to measure financial stress
The first analytical note, “Getting Sentimental: Using News Sentiment to Measure Financial Stress in New Zealand”, authored by analyst Trent Lockyer, explores the use of news sentiment as early-warning indicators of financial stress.
Preliminary findings indicated that these indicators can offer timely insights into potential financial system risks.
“These analytical notes represent a step forward in our efforts to enhance the robustness of our financial stability assessments,” said Kerry Watt (pictured above), director of financial stability assessment and strategy at RBNZ.
See LinkedIn post here.
Forecasting non-performing loans
The second analytical note, “Beyond the Crystal Ball: Forecasting Non-Performing Loans”, authored by senior analyst Tyler Smith, investigates the relationship between non-performing loans and economic conditions.
Non-performing loans, where borrowers have defaulted, pose significant risks to profitability, solvency, and funding accessibility for lenders.
The note found that macroeconomic conditions can be useful in forecasting the future path of these loans.
Commitment to advanced analytics
Watt emphasised the importance of these new approaches.
“While modelling of non-performing loans and news sentiment have been extensively studied internationally, little research has been done in a New Zealand context,” he said.
These notes reflect the Reserve Bank’s commitment to leveraging advanced analytics and data sources to strengthen its oversight of financial stability.
Promoting a resilient financial system
The Reserve Bank aims to provide insights into risks, helping to more effectively anticipate and mitigate them, thereby promoting a resilient financial system that supports sustainable economic growth.
These new techniques underscore the ongoing efforts to enhance the robustness of financial stability assessments in New Zealand.
Read the Reserve Bank media release here.
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