Guv’s end of year. They must be going spare over at The Heart Of The Nation (aka The Australian) at yet another slight from RBA governor Glenn Stevens. There he was in the rival Financial Review this morning with his now regular end-of-year interview with an AFR team led by editor-in-chief Michael Stutchbury. For the Oz’s new editor-in-chief, Boris Whittaker, the Guv’s generosity to the hated Fairfax Media journal is galling. The Guv’s interview will be the last at this time — he retires in September next year. In his interview this morning with the AFR, the Guv seemed to be relaxed about the economy, and surprised, somewhat, by the way the labour market has performed, i.e. contrary to all expectations from Martin Place (the RBA), the federal government and every galah in our extensive economic pet shop. A year ago he also seemed at ease, looking for the dollar to fall to 75 US cents (his nominated target). Six weeks after that interview, the RBA got very worried, briefed a key economic commentator about a change of tack and sprung a shock rate cut on the country at its first meeting for 2015 in February … will history repeat itself in early 2016? — Glenn Dyer

Aussie banks in Kiwi stress test. Buried in a highly technical report from the Reserve Bank of NZ yesterday examining the current financial position of the NZ dairy industry, the country’s major export sector and (apart from housing and construction) the most important domestic industry, was more potentially worrying news for Australian bank investors — the RBNZ is very, very worried about the potential impact of any problems with dairy hurting the country’s financial system, which is dominated by our big four banks — NAB, ANZ, Westpac and the Commonwealth.

The RBNZ revealed in the report that it “has also requested that the five largest dairy lenders undertake stress tests of their dairy portfolios, and is in discussions with banks to ensure that they are setting aside realistic provisions to reflect the expected rise in problem loans. The stress tests will provide a view of potential losses under similar scenarios and will be reported on in due course.”

Those five include our big four and the RBNZ stress test request will be noted by the Reserve Bank here and the other key bank regulator, APRA. In the second Financial Stability Report of the year, the RBA drew attention to the rising exposure of our big four banks to the stuttering NZ dairy sector — it put the figure at around $30 billion. New Zealand is the biggest foreign exposure for our banks, and the dairy sector is the biggest single exposure in that country. — Glenn Dyer

More All Black, fewer cows. Unlike the expanding All Black trophy cabinet and Richie McCaw’s bank balance, New Zealand’s dairy herd has shrunk for the first time in a decade as the end of the dairy export boom has ended — herd numbers are down 300,000 to 6.4 million in June of this year, a direct reaction to the slide in global prices which seems to have ended in recent months, leaving them down more than 50% since the peak. The previous boom ended in 2009 when milk prices fell, dragging down land values and triggering a surge in bad debts, which reached 4% of total sector debt of NZ$29 billion. The latest boom has led a further debt rise, to more than NZ$37 million (over A$30 billion), or 10% of total bank loans in the system. The RBNZ forecasts:

“Most farmers are estimated to make cash losses in the current season, compounding cash flow pressures experienced in the later part of the 2014-15 season. Despite some farms with high debts facing considerable difficulties, most farms are expected to remain viable over the medium term. Losses for the banking system as a whole are estimated to be manageable even under a severe stress scenario for the dairy sector.”

Whew. — Glenn Dyer