Latest turmoil could hit local bank costs says BNZ

BNZ Bank chief executive Andrew Thorburn. Photo / Janna Dixon

The sovereign debt crises in the US and Europe will likely push up the cost of New Zealand banks' funding, although the banking system here is well placed to handle the fallout from last week's global market rout, BNZ chief executive Andrew Thorburn says.

Speaking on TV3's The Nation programme on Saturday, Thorburn joined ASB chief economist Nick Tuffley and NZIER's Shamubeel Eaqub in saying the latest global economic problems were not on the same scale as those following the collapse of Lehmans Brothers in 2008, which froze credit markets for months, putting huge pressure on NZ banks' funding lines.

All three expressed concern about New Zealand's low savings rates, with Thorburn indicating he would welcome a move toward forcing people to save a certain amount of their income - an idea doing the policy rounds in Parliament at the moment.

Friday night's downgrade of the United States' credit rating, and turmoil in Europe as market attention moved to Italy, wouldn't be a 'Lehman's II' moment, although it was likely the cost of funds fro NZ banks would rise, Thorburn said.

"There is still uncertainty, they want a higher risk premium because they're not sure what's going to happen. So it'll cost us a bit more, but not significantly more at this point," Thorburn said.

"For many years New Zealand's been running a current account deficit and that means we've had to fund that, and we funded it through mainly borrowing from overseas.

Now, since the GFC that has improved significantly, because New Zealanders and businesses have been saving. The government moving its own fiscal position to be stronger has also required less funds, so that's good and we are borrowing, banks in New Zealand are borrowing now less from overseas, point 1, and point 2, longer term funds," he said.

"I think we're absolutely in a better position to day than what we were three years ago. Now, what I'm suggesting is the next couple of years high levels of uncertainty and flux. Let's not panic, let's just get the basics right, and we're in a good position as an economy, but we need to do more to generate more savings in New Zealand than what we're doing today, otherwise we won't be able to fund the growth of the economy."

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