Friday, September 26, 2008

Our banks firm, New Zealanders told

We're in a recession, but we'll be all right. That seems to be the gist of the news reports and opinion pieces I have been reading today.

The confirmation of the recession - if any were needed - came from Statistics New Zealand, which said there was a 0.2 percent drop in GDP for the three months to June 30. This is the first time New Zealand has been in recession since March 1998.

But worries about the stability of local banks, which have sent their share prices plummeting, are largely unfounded, say both Reserve Bank governor Alan Bollard and his Australian counterpart, Glenn Stevens.

And David Tripe, head of banking studies at Massey University, says the fall in share prices will become an issue only if one or several of the banks has to recapitalize - to go to the markets for more shareholder capital.

But the ANZ Bank and the three other big (Australian-owned) New Zealand banks have total assets of A$1.6 trillion, combined shareholders' funds of A$92 billion, and "comparatively tiny" exposure to sub-prime assets, all of which makes a move to recapitalize unlikely at this stage.

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