RBNZ Says Banks Can Absorb N.Z. Dairy Losses as Farmers Struggle

Banks can cope with the dairy downturn in New Zealand, even though about half the country’s farmers are experiencing a second straight season of losses, the central bank said.

The five biggest lenders, which account for 98 percent of banks’ NZ$38 billion ($25 billion) exposure to the dairy industry, can absorb losses from earnings rather than through an erosion of capital, the Reserve Bank said Wednesday in Wellington. A stress test of the banks shows average losses of 3 percent to 8 percent of total exposure under two scenarios that are worse than the RBNZ’s current forecast, it said.