RBNZ Stress Test Confirms Top Banks’ Resilience Against Geopolitical Shocks

Core Insights - The Reserve Bank of New Zealand (RBNZ) has confirmed that the country's five largest banks are well-equipped to handle significant geopolitical risks, as indicated by the 2025 Bank Industry Stress Test results [2][9] Group 1: Stress Test Overview - The stress test assessed the resilience of ANZ Bank New Zealand, ASB Bank, BNZ, Kiwibank, and Westpac New Zealand, which together account for 91% of bank lending in New Zealand [3] - Two severe scenarios were simulated: one involving a geopolitical shock leading to a 6.5% contraction in the economy over three years, with unemployment reaching 10.5% and house prices dropping by 35% [4][9] Group 2: Scenario Analysis - The first scenario resulted in significant drops in bank capital ratios, yet all banks maintained levels above the minimum regulatory requirements [4][9] - The second scenario combined the economic downturn with a "name crisis" for each bank, leading to severe outflows of retail deposits and a three-month closure of wholesale funding markets, which further depleted bank capital but still kept it above regulatory minimums [5][9] Group 3: Recommendations and Future Planning - The RBNZ emphasized the need for banks to improve coordination between capital management and contingency funding plans to better prepare for future shocks [7][9] - The central bank plans to use the stress test results to inform recovery planning, adjust policy settings, and guide supervisory assessments of regulated entities [7]