“New Zealand's financial system remains resilient but cash-flow pressures in households are growing and buffers are likely to be tested,” the Reserve Bank of New Zealand (RBNZ) said on Wednesday, via its bi-annual Financial Stability Report (FSR).

The bank is currently looking at easing loan-to-value ratio restrictions on home loans, reflecting the bank's assessment that current lending activity presents less risk to financial stability.

The FSR added that cash-flow pressures were growing and buffers were likely to be tested, while a large rise in unemployment remained the biggest risk to domestic financial stability.

"Overall, consumer and business confidence is low, pointing to a weaker outlook for household consumption and business investment, and reflecting the dampening effects of higher debt servicing costs," also mentioned the RBNZ FSR.

The update also conveys statements from RBNZ Governor Adrian Orr and Deputy Governor Christian Hawkesby alongside the FSR.

"To date, there have been limited signs of distress in banks’ lending portfolios, with only a small share of borrowers falling behind on their payments," RBNZ Governor Adrian Orr said initially before adding, "This reflects the ongoing strength of the labor market and that borrowers have been able to adjust their spending or use previous savings and repayment buffers."

On the other hand, RBNZ Deputy Governor Christian Hawkesby said house prices had continued to decline and were closer to being at sustainable levels than had been the case in recent years.

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