The Reserve Bank of New Zealand just published its latest Financial Strength Dashboard data. It is now up to date until 31 December of last year.

A summary

Capital went up. Largely thanks to restrictions on distributions and perhaps a donation from a generous parent bank, aggregate CET1 ratios are now well over twelve percent. The increase in capital is interesting because the ambitious and controversial RBNZ capital plans have not fully entered into force.

One bank that persists in lowering its capital ratio is Kiwibank, see that line that goes down all the way. Kiwibank now reports a CET1 ratio 90 basis points over 10 percent, at which point investors will become nervous. What is our Reserve Bank doing to help improve capital for the sick man of New Zealand banking?

Profitability is back. Most banks appear to have recovered from annus horribilis 2020. A slight worry are the banks at the lower end of the profitability spectrum: Heartland, Kiwibank, TSB, Rabobank. Their (quarterly) Return on Equity ratios are perhaps too weak to cover their cost of equity:

Non-performing loans are easing, but they are not yet fully back to pre-Covid19 levels:

Densities have gone down – banks appear less risky. There are less risk-weighted assets compared to total assets:

But the lower densities are partly driven by higher cash holdings:

In sum

New Zealand’s banks appear to have turned the corner. Last year was bad for sure, but the latest dashboard data confirms again that the New Zealand banking system is resilient.