Banking and investment behaviour faces considerable change as the population ages
Photo:
Unsplash/ Towfiqu Barbhuiya
The country's banking and investment behaviour faces considerable change as the population ages, according to a new report from the Reserve Bank.
The central bank said the financial industry needs to understand and get prepared for what may be complex, long term changes, that may also increase risks to the financial system.
Report co-author Enzo Cassino said over the next 25 years or so it foresaw higher savings, different investment patterns, affecting interest rates, bank lending, as well as the insurance sector.
"Overall we think there'll be lower demand for housing loans and also higher deposits as older people want to hold more in lower risk investments such as term deposits, so this will affect business models that banks are using."
He said similar changes would likely affect the insurance sector with increased demand health insurance and lower demand for life insurance.
Increased saving would also would put pressure on interest rates and lift the value of assets such as housing and shares.
Such a shift might then steer banks to increase lending to other sectors, and with more domestic savings and sources of capital, would reduce borrowing overseas.
Cassino said it wanted to alert banks and other financial businesses to potential changes and how it might affect them.
"We want to encourage banks and other financial institutions how an older population will impact their business model over the coming decades.
"The greatest risk may be that these institutions may not be preparing or necessarily thinking about these changes will affect them."
Cassino said the RBNZ was not raising the alarm or concerns for financial stability.
The report has been published in advance of its inclusion of the next RBNZ financial stability report due in November.
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