The country's banks are strong enough to withstand the worst of the Covid-19, but would be vulnerable to a major rise in unemployment and plunge in house prices, according to the Reserve Bank (RBNZ).
The RBNZ has stress-tested the financial strength of the main banks and found they have sufficient capital to weather the pressures caused by the pandemic.
The top nine retail banks, which control more than 90 percent of the country's banking market, were tested against two hypothetical 'bad news' scenarios: a one-in-50/75 year event when house prices fall 37 percent and unemployment hits nearly 14 percent; and, a more severe one-in-100 slump with house prices falling 50 percent and unemployment close to 18 percent.
The testing was done at the start of the pandemic, and RBNZ Manager Financial Systems Analysis Chris Bloor said the actual pressure Covid caused, and its easier scenario, showed banks were strong enough.
"Banks were resilient in the first scenario... much worse than we're currently forecasting... what we take from this is that while banks will be impacted by this downturn in the economy we think they will be able to come through relatively well."
Bloor said under the more severe scenario the banks would fall below the minimum capital levels required by the the RBNZ and this would mean they would have to raise more finance and strengthen their balance sheets.
"That shows that banks aren't invincible and highlights what we were trying to do last year and improve the capital resilience of those banks."
The RBNZ's controversial decision last year to make banks beef up their finances over a period of seven years has been delayed until next year.
At the start of the pandemic the central bank ordered all major retail banks not to pay dividends to preserve cash. All the major banks have reported a marked rise in bad and doubtful debts in recent months.
So far the housing market has defied predictions of a sharp fall in prices, with a shortage of houses still underpinning the market and low interest rates making properties more accessible for first time buyers.