WELLINGTON, May 29 (Xinhua) -- New Zealand households and dairy farms are carrying significant amounts of debt, which could become a problem in case of a serious downturn, New Zealand's central bank, the Reserve Bank, reported on Wednesday.
In its newly released Financial Stability Report, the Reserve Bank suggested that New Zealand's financial system is generally resilient. But risks remain, domestically around household and dairy farm debt, and internationally around a sustained global slowdown.
The report said banks would face large losses if households and dairy farms defaulted on their loans when house prices and farm prices fell.
It is reported that household debt in New Zealand is growing at 6 percent per year, compared to 9 percent in 2016. And debt is increasing faster than income.
About two-thirds of households have no mortgage debt, but nearly 40 percent of new mortgages are to people borrowing more than five times their annual incomes.
The Reserve Bank imposed loan-to-value ratio (LVR) restrictions in 2013 on banks' mortgage lending to improve the resilience of households and banks.
The Reserve Bank said that slower growth in household debt and house prices, alongside safer lending by banks, has allowed the LVR restrictions to be eased in the past two years. The current LVR restrictions remain appropriate for now, as household risks have not changed much in the past six months.
The Reserve Bank also used the report as a chance to reiterate its call for banks to carry more capital as a buffer for a downturn.
