While turmoil reigns in world financial markets, the Reserve Bank is making reassuring comments that this country's financial and payments systems have held up well.
But releasing its six-monthly Financial Stability Report today, the Reserve Bank did say global market conditions continued to affect the cost and accessibility of offshore funding on which the New Zealand banking system relied.
"Over the past two months, even well-rated financial institutions, such as the Australasian banks, have found it very difficult to borrow in global wholesale markets given the extreme levels of risk aversion among foreign investors," Reserve Bank Governor Alan Bollard said.
Recent international events had demonstrated the risks faced by financial systems with a high level of dependency on external financial markets, including those in this country and Australia.
A key theme of today's report was the vulnerability arising from New Zealand's heavy reliance on foreign capital.
But Dr Bollard also said that New Zealand's banks, and the Australian parents of the large Australian-owned banks, had enough capital to withstand an increase in loan losses associated with an economic downturn.
Those banks were also not directly exposed to many of the negative factors affecting their global peers, Dr Bollard said.
At the same time, global developments had proven extremely disruptive and it would likely be some time before financial market conditions normalised.
"The (Reserve) Bank will continue to adopt measures as needed to maintain the stability of our financial system as far as possible in these difficult times," he said.
The slowing in the economy had been reflected in an easing in credit growth, and savings appeared to be improving, particularly in the household sector.
Together with the decline in the exchange rate, that was expected to improve New Zealand's external balance and reduce the need for foreign borrowing over time, even as exports would be restricted by weakening in global activity, Dr Bollard said.
The Reserve Bank was now consulting with the registered banks on proposed new standards for the management of their funding and liquidity.
"It is expected that this policy, when finalised, will reinforce incentives on the banks to diversify away from short term wholesale funding and thus reduce their vulnerability to market disruptions over the longer haul."
Deputy Governor Grant Spencer said banks had been constructing residential mortgage backed securities following the Reserve Bank's announcement in May that it would accept those securities in its domestic market operations.
"A number of banks now have these securities in place. This will enable us to maintain liquidity in the banking system if the offshore funding channels continue to be disrupted."
Today's report said the rate at which households were accumulating liabilities had fallen sharply during the past year and the ratio of household debt to disposable income appeared to have peaked.
But it also noted that outstanding balances on credit cards indicated some strain on household finances.
The outstanding portion of credit card debt bearing interest grew 12 per cent in annual terms during August, compared to 5 per cent in August 2007. That was the fastest rate of growth in that aggregate since 2002, the report said.
Among issues affecting business, lending to the agricultural sector was growing at near record rates on the back of a buoyant dairy sector and associated growth in rural land prices.
Debt had risen as the value of dairy land and land capable of supporting dairy farming had increased, but global dairy prices had been falling recently.
"The Reserve Bank considers that agricultural lending has become a riskier component of bank balance sheets that should be managed carefully," the report said.
It also noted that there was likely to be elevated credit risk in commercial property lending for now, but commercial property did not appear to be in substantial over-supply which should help underpin valuations over the medium term.