NZ financial markets 4th best in the world - report

By Ben Chapman-Smith

The major banks operating in New Zealand have been ranked as the among the most stable and sound in the world.
The major banks operating in New Zealand have been ranked as the among the most stable and sound in the world.

New Zealand's relatively smooth ride through the Global Financial Crisis has left it with one of the most well-functioning financial sectors in the world, according to a major report.

The World Economic Forum released its annual Global Competitiveness Report this week, ranking 148 countries according to their level of productivity and prosperity.

One of the categories assessed was each country's level of financial market development, for which New Zealand was ranked fourth in the world.

Within that category, New Zealand's highest rankings were for protection of borrowers' and lenders' rights (1st equal), soundness of banks (2nd), ease of access to loans (9th), and regulation of securities exchanges (9th).

The country was 10th best for financing through the local equity market and in the top 20 for availability and cost of financial services, and venture capital availability.

Sean Hughes, head of the Financial Markets Authority (FMA), said New Zealand's strong ranking had been greatly assisted by changes to come out of the Capital Markets Development Taskforce.

One of these changes was the establishment of the FMA in 2011, whose mandate is to promote confidence and participation in the financial markets.

"In our first two years we have worked incredibly hard with market participants to lift standards for the benefit of them and investors," Hughes said.

"Participants and advisers have also worked tirelessly to strive to meet the new standards required of them."

Phil O'Reilly, chief executive of Business NZ, said it was unsurprising the country had scored so well considering how well its banks stood up through the Global Financial Crisis.

"Our banks were not engaging in the types of activity that caused other banks to crash," he said.

"In quite a few countries in the world, there'd be a significant proportion of the business community struggling now to get the right loans at the right time."

O'Reilly said New Zealand's business community was fairly upbeat compared to others.

Although he thought New Zealand's 18th ranking for access to venture capital seemed a bit high, that had to be seen in a global context.

"Our venture capital finance sector is relatively subdued but other economies may be even more subdued. Eighteenth suggest we're at the back end of the developed countries."

The World Economic Forum obtained data about New Zealand by partnering with BusinessNZ and the New Zealand Initiative, a business think tank and research institute.

Unlike O'Reilly, the New Zealand Initiative's executive director Oliver Hartwich said he was surprised New Zealand had ranked so highly for its financial market development.

"Our market is relatively tiny in comparison to others. We may be well-regulated and well-functioning but I don't think our market is a market leader," he said.

Hartwich said the Initiative's business members were all happy with the way the markets were being regulated.

The Global Competitiveness Report said the financial and economic crisis had highlighted the importance of a sound and well-functioning financial sector.

An efficient financial sector meant resources could reach the right entrepreneurial or investment projects, it said.

"A thorough and proper assessment of risk is therefore a key ingredient of a sound financial market."

The Forum said economies required sophisticated financial markets that could make capital available from such sources as banks loans, well-regulated securities exchanges, and venture capital.

"In order to fulfill all those functions, the banking sector needs to be trustworthy and transparent, and - as has been made so clear recently - financial markets need appropriate regulation to protect investors and other actors in the economy at large," the report said.

The local sharemarket has had a strong run this year, with NZX net profits for the six months to June 30 doubling to $6.4 million compared with the same period last year.

Listings so far include Mighty River Power, Z Energy, Wynyard Group and SLI Systems, with Meridian Energy set to float in October.

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