Risks To The Financial System Have Increased
Risks to the financial system have increased over the past six months, Reserve Bank Governor Christian Hawkesby says in releasing the May 2025 Financial Stability Report.
'Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,' Mr Hawkesby says. 'While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.'
Geopolitical risks have escalated, particularly following the US imposition of sweeping tariffs on goods imports from many countries, including New Zealand. These developments have heightened financial market volatility and pose a material risk to global economic activity.
Domestically, economic activity remains subdued. Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand. However, lower borrowing costs and high agricultural export prices are supporting debt serviceability.
Banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower.
General insurers are experiencing more stable conditions. Our recent insurance stress test highlighted improved resilience in the sector, but also the challenges of extreme seismic events for New Zealand.
Progress is continuing on the implementation of the Deposit Takers Act 2023. Several strands of this work will help to promote competition and efficiency in the deposit-taking sector.
"Work on the review of key bank capital settings is well underway, with the release of the Terms of Reference today. This outlines the purpose, approach, and scope of the review, to ensure the right settings are in place to support financial stability and promote the wellbeing and prosperity of New Zealand," Mr Hawkesby says. 'We will engage leading international experts to inform and challenge our review.'
The Depositor Compensation Scheme will come into effect on 1 July 2025. This will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system.
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How rich is your region? Housing, employment and debt compared
Times have been tough for many New Zealanders in recent months. But the effect of the downturn hasn't been felt evenly, and some areas are tracking better than others. Wellington still holds up in terms of income, and is now near the top of housing affordability statistics, too. The top of the South Island has the best credit scores. Unemployment is lowest in the South Island. Here is how the regions stack up. Northland ADVERTISEMENT Early morning sunrise over Tutukaka Coast, Northland, New Zealand. (Source: According to MBIE data, Northland had an average household income last year of $123,900. House prices vary according to where in the region you are. As a whole, Northland house prices are still 12.2% below their peak. In the Far North, it takes about 48% of a median household income to service an 80% mortgage on a median-value house. In Whangarei, it's just over 50%. Rents moved up 1.7% in May compared to April, according to Trade Me data, and Cotality says it takes about a third of median household income to cover the median rent. One of Northland's bigger problems is unemployment. Data shows just under 11% of the population is on JobSeeker support. Northland's GDP per capita is $54,796, according to MBIE. The morning's headlines in 90 seconds, including new corruption report, California protests, and Justin Baldoni's legal loss. (Source: 1News) According to Otago University's deprivation index, which measures deprivation based on factors like access to internet, income, employment, qualifications, living space and living conditions, the Far North District of Northland had 57% of its population in the two most deprived deciles. ADVERTISEMENT ASB recently noted that construction activity was particularly weak in Northland. Simplicity chief economist Shamubeel Eaqub said Northland was isolated, which created problems, but if the road to Auckland was improved, it could lift incomes and opportunities. Auckland (Source: Getty) A little further south, incomes are much stronger. Auckland's average household income according to MBIE is $155,100 a year and GDP per capita was $88,355. Stats NZ weekly data showed that Auckland had the second-highest median household income, at $2615. Auckland's unemployment rate is 5.4%, according to Infometrics. While people are earning more in Auckland, housing is a bigger drain. ADVERTISEMENT Auckland had a median house price of $1 million in April, and first-home buyers were paying a median of just over $900,000 in the latest Cotality data. In Auckland, just under 48% of median household income would go on servicing a mortgage on a median-priced house. Auckland house prices remain 21.6% below their peak. Trade Me data, which measures asking rents, showed they had dropped 1.5% in May compared to April to $670. That was joint second-highest in the country but Cotality's data showed that, compared to incomes, they were more affordable than most main centres, requiring a median 25% of income. About a quarter of Auckland's total population is recorded as having a bachelor's degree or higher qualification. Auckland's unemployment rate on an annual average basis was 5.4% in the year to March, according to Infometrics. Recent Worldline data showed Auckland and Northland had one of the smallest increases in spending in May in core retail merchants, year-on-year, up 1.1%. Waikato ADVERTISEMENT Aerial view of Waikato River (Source: MBIE says Waikato's average household income is $129,100 a year and GDP per capita is $68,598. Waikato also has a relatively higher number of people out of work - 7.3% are on JobSeeker Support. The Otago University deprivation index shows 54% of South Waikato's population is in the two most deprived deciles. Waikato house prices are 12.1% below their peak but Cotality has noted that the smaller price fall has meant affordability hasn't improved in the same way that it has in some other centres. Rents are flat, according to Trade Me, with an average weekly asking price of $580. Cotality says renting requires a median 27.5% of income. Farming incomes are relatively strong which may help areas such as Waikato. Cotality noted this as a driver in a recent property market update. BNZ's chief economist Mike Jones noted farm sales and fertiliser imports are trending up. ADVERTISEMENT In South Waikato, earlier RNZ analysis showed 23% of the population was employed by a relatively small number of manufacturing businesses. Eaqub said variation in prosperity around the country was driven by economic opportunities. "Different places have different reasons for being. Because of geography, the makeup of industries, economic opportunities, different levels of income, different amount of job opportunity, that really underpins a lot of the other stuff. "What is the reason for people living there? Farming, manufacturing, retirement living - how many jobs will there be, what kind of income, what kind of wealth can be generated there versus how much is brought in from other places?" Bay of Plenty Mt Maunganui view from Moturiki Island, New Zealand. (Source: Bay of Plenty had an average income of $134,100 last year and average asking rent of $660. ADVERTISEMENT Trade Me said that rents dropped 2.9% in April compared to March. GDP per capita was $67,650 In Bay of Plenty, 8% of the population is on Jobseeker support. But the picture is mixed within the region: while areas such as Tauranga and Mount Maunganui are better off, Kawerau has 78% of its population in the most deprived deciles. Kawerau has 42% of its people employed by a small number of manufacturing businesses. Bay of Plenty house prices are 13.5% below their peak. Tauranga is a standout in the housing market, the least affordable main centre with a value-to-income ratio of 8.6 according to Cotality. This is down from 12.1 at the peak. Paying a median mortgage takes 51.6% of a median household income in Tauranga and 61.4% in the Western Bay of Plenty. Cotality noted this could be affected by people moving into the area with investment income or other assets. ADVERTISEMENT Eaqub said Tauranga, alongside Queenstown, was a standout region with different reason for being. "They are kind of 'sunshine coast' where people go to retire so they have different drivers of society and economy." Taranaki Taranaki Maunga and Panitahi (Source: ASB recently singled Taranaki out as a poor performer on a regional basis, recording a "tough year" in 2024. Construction activity was weak, employment dropped 2.5% in the year because of lower gas production, the bank said, and consumer confidence fell. Taranaki's spending in core retail was up 3.7% in May, year-on-year. MBIE said the region had an average household income of $132,400, and GDP per capita of $85,362. ADVERTISEMENT Trade Me says the average asking rent is $610 a week, up 1.7% year-on-year. Renting requires a median 31.4% of income, according to Cotality. This is another area with variation in house prices, from a median of $495,000 and $500,000 in South Taranaki and Stratford, respectively, and $685,000 in New Plymouth according to the Real Estate Institute. Gisborne Overlooking the town of Gisborne, New Zealand from Kaiti Hill. (Source: Gisborne's average household income was $133,200 last year, and had GDP per capita of $55,326. But it had the highest weekly asking rent of anywhere in the country in Trade Me's last update, at $680 a week. This could be influenced by a relatively smaller number of properties for rent. Cotality said renting would take 31.5% of a median income. Gisborne and Hawke's Bay house prices are still 16.6% below their peak. Servicing a mortgage requires 34.3% of a median income. Gisborne has the lowest Centrix credit score, on average, in the country. ADVERTISEMENT Infometrics chief forecaster Gareth Kiernan said Gisborne's physical distance from most of New Zealand was a hurdle. Hawke's Bay An aerial view of Napier, Haewke's Bay. (Source: Hawke's Bay has an average household income last year of $149,600 according to MBIE. GDP per capita was $64,935. The average asking rent, according to Trade Me, of $670 is on par with Auckland and up 6.3% between April and May. There are pockets that are more prosperous, and many not so - Wairoa has 75% of its population in the most deprived deciles according to Otago's data. Kiernan said, the prosperity or otherwise of some regions could be traced back to the economic reforms of the 1980s. "When there were massive transitional costs from the removal of protection or subsidies for some industries, which resulted in high and persistent unemployment in some areas, dragging down average socioeconomic outcomes for those areas." ADVERTISEMENT Manawatū-Whanganui Mt Ngauruhoe and Mt Ruapehu view from Lake Taupo (Source: MBIE said this region had average household income of $119,200 and GDP per capita of $59,834. Whanganui had the biggest annual spending change in the country in May, up 6.9%. Palmerston North is relatively affordable for renters, requiring 26.4% of income, according to Cotality, and towards the cheaper end for buying, too, at 34%. Compared to income, housing in Whanganui is more expensive. ADVERTISEMENT Wellington The Beehive (Source: Wellington has been going through tough times with the government cutting back on spending but the data still shows it has the highest incomes in the country. According to Stats NZ, it had the highest median weekly income of $2870 last year. MBIE said the average household income was $162,400. Almost 30% of Wellington's population reported having a degree-level qualification or higher. Infometrics said the annual average unemployment rate to March was 4.8%. Historically, the capital had much lower unemployment than the rest of the country but that is no longer the case. ADVERTISEMENT MBIE said the Wellington region's GDP per capita was $92,776. Wellington house prices are 25.1% below their peak. The big fall in house prices has helped affordability a lot. Cotality said prices were at pre-2017 affordability levels, with a value-to-income ratio of 6.5. It is the cheapest main centre to rent in, with median rents 23.5% of median household income. Spending in May was down 1.3% year-on-year, the only centre to record a fall. Marlborough Picton, Marlborough. (Source: Marlborough has an average household income of $119,100 and GDP per capita of $84,296. It has the second-highest average credit score in the country according to Centrix, behind nearby Tasman region. ADVERTISEMENT Kiernan said the unemployment rate tended to be lower on average in the South Island. He said historically, people who did not have a job there would leave to find one, and that could mean shifting to cities in the North Island. "That tends to keep a cap on joblessness down there." Marlborough's unemployment rate is 3.1%. Tasman Picton, Marlborough. (Source: As well as having the highest credit scores in the country, the Tasman region has some of the least affordable housing, according to Cotality. It was the fourth-least affordable in terms of mortgage repayments compared to household income, at 56.6%. That is behind areas such as Thames-Coromandel, Queenstown, Western Bay of Plenty and Central Otago, which Cotality notes can be particularly affected by outside investors buying properties. ADVERTISEMENT Tasman's unemployment rate is 3.5%. Canterbury New Regent St in Christchurch. (Source: Canterbury has an average household income of $132,300, and GDP per capita of $74,772. ASB recently ranked Canterbury second in terms of regional economic performance. Cantabrians were the second most optimistic in the country after Aucklanders, the bank said. ADVERTISEMENT Construction activity was relatively strong. The area's housing market hasn't had such big swings as other parts of the country. Christchurch has an unemployment rate of 5.4% and Selwyn 3%. Ashburton sits at 3.6%. The Selwyn district has 62% of its population in the least deprived deciles, according to Otago University. West Coast The road up to Denniston Coal Mine on the West Coast (Source: The West Coast has average household income of $117,900 and GDP per capita of $75,057. The region is relatively isolated but has some of the cheapest housing in the country. Infometrics puts the average rent at $393 a week compared to $575 for the country as a whole. ADVERTISEMENT Cotality's data shows an 8% mortgage takes less than 25% of the median household income in Grey, the most affordable in the country. Kiernan said sometimes areas with cheaper housing would attract people who could not afford to live elsewhere. "It may be negative in terms of the overall average skill base, education and income potentially earned." Otago The Square of Dunedin Historical Railway Station (Source: Otago has been a stronger performer recently, boosted by a recovery in tourism. Spending in Otago was up 4.6% year on year in May, after a strong month in April, too. The region's unemployment rate in March was just 2.9%. In Queenstown Lakes, almost 60% of the population is in the least deprived deciles. ADVERTISEMENT Queenstown has some of the most unaffordable housing in the country. An 80% mortgage on a median value house requires almost 84% of the median local household income. Cotality said that reflected investment from outside the region and people bringing equity in to the market. According to Infometrics, Otago has the lowest unemployment rate in the country, at 2.9%. Southland Esk Street in Invercargill. (Source: Southland has an average household income of $110,900 and GDP per capita of $83,620. Recent property data showed that house prices had returned to their previous peaks - but that is only a median $485,000. In Invercargill, it takes just 29.2% of the median household income to service a mortgage on a median property. ADVERTISEMENT The average asking rent according to Trade Me was $480 a week in April. 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