New Zealand finance firms see 30% deposit surge outpacing banks

[WELLINGTON] New Zealand finance companies are attracting a surge of new money as the nation’s new deposit insurance levels the playing field with banks, according to the Reserve Bank of New Zealand (RBNZ).

Deposits with finance companies have increased 30 per cent since the beginning of 2025, the RBNZ said on Wednesday (May 6) in its Financial Stability Report. That outpaces the nation’s four largest banks, which suggests some depositors moved funds out of banks and into finance companies, the central bank said.

New Zealand introduced a depositor compensation system in July last year, requiring that funds of as much as NZ$100,000 (S$75,241) will be reimbursed if a lender fails. The added protection has not only boosted inflows but also allowed finance companies to offer lower interest rates, reflecting reduced risk.

“Finance companies should not need to pay a much higher return than banks to attract deposits now,” the RBNZ said.

The spread between finance companies’ and banks’ one-year term deposits has narrowed to around 0.5 percentage point from 1.4 points at the start of 2025, the report showed.

The narrower term deposit spread has reduced funding costs for finance companies relative to banks, improving their ability to compete, particularly in the home loan market.

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Residential mortgage lending by finance companies has risen more than 30 per cent since deposit insurance was introduced. These lenders tend to focus on niches where banks are less active, such as self-employed borrowers with more volatile income streams, the RBNZ said.

The central bank said that risks to the financial system remain limited. Finance company mortgages total about NZ$550 million, compared with roughly NZ$388 billion held by registered banks, and only a small share of those loans are non-performing. BLOOMBERG