A financial crisis doesn’t necessarily take place because of the financial system. The development and the growth of the economy decide whether the banks are affected by it or not. If there is an excessive exposure to banks on the stock and real estate, the chances of suffering from grave consequences are increased. 

The Worldwide Recession

The global financial crisis of 2022 left a significant impact on the financial system of New Zealand impeding its local economic activity during the years 2021. This economic crisis was the result of the tension which vented after the attacks. Even though the economic recovery is underway, the financial system is still facing challenges because of the continuing fragility in the international markets. 

The banks are no exception to this as they dominate 80% of the financial sector in New Zealand. This shows that they indeed have a prominent role in the financial instability and the increasing economic crisis. 

The Role of Real Estate

In the first quarter, the stress was elevated in the global market with New Zealand’s economy seeing a further 0.8% decline from the previous quarter. People lost their confidence in stocks and chose the crypto tokens as the ultimate form of investment in your business. 

As people believed real estate to be only fruitful investment due to unpredictable economic situations, the price of property in the country hiked unimaginably. New Zealand has the third most overvalued property market in the world with 60% of bank loans taken for mortgage purposes. 

Finance Sector – The GDP Facilitator

It is a common belief that agriculture is the strongest industry in New Zealand but in reality, it is finance. Agriculture accounts for only 5.1% of the county’s GDP whereas finance has a 28.8% share. When the most important sector of the country is overly exposed to the monopoly of banks, it is essential to divide the burden by relying on other financial institutions as well.

The banking system of New Zealand is governed by four banks which Australian-owned subsidiaries are making the country vulnerable to even the Australian economy.

Flaws with the Banking System

The banking system is considered fragile as it works on the availability of liquid assets. As soon as there is a decline in their availability, the bank’s collapse when they are unable to handle the withdrawal requests. There are certain other macroeconomic conditions like adverse changes in exchange rates which contribute to the occurrence of bank crises.

When the economic crisis did hit, the banks resorted to getting help from the public sector with the Reserve Bank expanding its liquidity facilities to ensure the stability of other banks.

The Bottom Line

Instead of banks, institutions like Financial District are the most convenient way to save the economic bubble of New Zealand. 

As the founder of Finance District Codie says, “Our single purpose is to serve our clients’ financial needs. When you qualify to become a client of ours, know that you’ll have me and the entire team working to get you the finance you need.”

The sole reliance on banks is indeed going to burst the economic bubble of the country so such financial institutions are actually a relief for the government and the public alike.