The country's five major banks have been given the all clear by the Reserve Bank in a series of tests simulating a long-term dairy crisis.
Around 80 percent of farmers are currently operating at a loss, with officials expecting the number of farming loan defaults to rise in the year ahead.
The dairy sector makes up around ten percent of all bank lending at about $38 billion dollars.
A continued slide of the market prompted the Reserve Bank to initiate the 'dairy stress tests' by creating two hypothetical scenarios in which the five major banks which account for almost all farming lending were asked to assess the implications.
The Reserve Bank says while that’s a severe case scenario, it is not implausible.
Despite the grim outlook, the tests show that banks will be able to cope. Most of the losses would be absorbed through its profits, including capital put aside for the expected downturn.
Participating banks are now considering the results of the stress tests and whether any changes need to be made to their current operating systems.
Newshub.
