River floods could pose bigger risk to banks than coastal flooding, Reserve Bank report says

Flooding caused by rivers and surface water could pose a bigger risk to banks residential lending portfolios than coastal flooding, a Reserve Bank report says.

It has stress tested main retail banks exposure to various climate change-related risks as part of its soon-to-be published six-monthly financial stability report.

Deputy Governor Christian Hawkesby said the tests were not exhaustive and were aimed at helping the banks improve the identification of climate-related risks, analysing the data, and look for ways to handle the risks.

He said banks were asked to measure how exposed their mortgage portfolios were to flood zones under varying levels of sea level rise ranging from 20 centimetres to one metre.

The biggest financial impact on banks from coastal flooding would be felt in lending in Christchurch, with 22 percent of the national total.

This was followed by Wellington with 14 percent, while Hawkes Bay had a significant amount of local lending at risk from coastal flooding.

Auckland had less than one per cent of its mortgage lending in properties at risk from coastal flooding, but was much more at risk from river and surface flooding.

"The results indicated that in a severe scenario, more than a quarter of the banks' current Auckland mortgage lending was on land that could be impacted by flooding," the report said, adding that accounted for 12 percent of all home loans for the country.

It said current house prices probably did not reflect the greater risk of flooding, nor changes in insurance company policies.

"Therefore, owners may see a fall in property values in flood zones as we gain an improved understanding of the risks and this is priced into the housing market."

The RBNZ report said as banks gained more knowledge of flooding risks, they could position themselves to avoid them in the future and work with existing customers to manage them.