New Zealand Central Bank Says Financial System Is `Sound'

By Tracy Withers

Aug. 21 (Bloomberg) -- New Zealand's financial system is fundamentally sound and local banks are managing the turmoil in the credit markets, the Reserve Bank said today.

``Our banks are navigating their way through the current turmoil well,'' Toby Fiennes, head of prudential supervision at the Wellington-based central bank, said in a statement. ``The New Zealand financial system is fundamentally sound. We are monitoring the situation closely.''

As many as 25 non-bank lenders have failed the past year as borrowers have been unable to meet their obligations because of a weak housing market and rising credit costs. Some mortgage funds have been frozen and banks have increased provisions for bad debts as the economy slows.

``The majority of institutions are not directly affected by these current events,'' Fiennes said. ``These institutions are well-capitalized businesses and give no apparent reason for concern.''

The Reserve Bank is accepting a wider range of securities as collateral for cash, including mortgaged-backed paper, he said. The facility has been designed in case global markets deteriorate further and the likelihood of it being needed remains extremely low, he said.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.