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New Zealand's financial system is more resilient and positioned to support economic growth, but still faces a volatile and uncertain environment, Reserve Bank governor Alan Bollard says.
Releasing the latest Financial Stability Report, he said the global economic recovery was now broader, and strong growth in Asia was supporting commodity producers such as this country and Australia.
Despite that, global wholesale funding markets remained fragile, given stretched fiscal positions and banking sector problems in some European countries, Dr Bollard said.
Efforts by households and businesses to cut or contain debt were reducing New Zealand's overall external imbalance, but were also weakening domestic demand.
The Government's approach to also consolidate its financial position should help to improve the country's overall external position, he said.
Craigs Investment Partners broker Peter McIntyre said the recent profit results reported by Australian banks proved the point Dr Bollard was making.
"Banks have repaired themselves. The worst is behind them. Banks don't need to secure so many funds from offshore and consumers are fixing their own balance sheets.
"However, it is yet to be determined whether that will translate into more lending."
Australia's four major banks - ANZ, CBA, National Australia Bank and Westpac - delivered a record combined underlying cash profit of $A12 billion ($NZ16.22 billion) for the first half of 2011.
Key features of the results were net interest income up 3% on the previous corresponding half-year, a reduction in bad debt expenses of 6% and costs increasing by only 1%. New Zealand's major banks are owned by Australian parents.
On a positive note, after more than two years of negative growth, business lending appeared to have reached the bottom of the deleveraging cycle, Mr McIntyre said.
"We were lucky the banks reacted quickly to the global financial crisis and that they were in a strong financial position, thanks to the strong commodity boom in Australia.
"They also had the support of shareholders and had the Crown guarantee behind them to ensure the industry did not collapse."
With New Zealand banks now needing to source a substantial amount of capital from the domestic market, pressure to borrow overseas had been reduced, he said.
Dr Bollard said the February earthquake in Christchurch had caused financial stress for households and businesses and created a challenge for the insurance sector in dealing with claim flows.
But the readiness of banks to support recovery in Christchurch was encouraging.
"Rebuilding will add momentum to the economy and is likely to require access to credit, despite much of the damage being substantially insured," he said.