also fallen sharply, with increased uncertainty around the strength of future demand. some apparent weakening of demand for credit may also reflect perceptions by businesses that credit would not be available or that terms have tightened. figure e : annual credit growth ( by sector ) % % housing consumer business agriculture - 5 - 5 - 10 - 10 - 15 - 15 source : reserve bank balance sheet survey. figure f : credit demand ( observed change over past 6 months ) % mar - 18 sep - 19 sep - 18 mar - 20 mar - 19 jun - 20 % more demand for credit - 10 - 10 - 20 - 20 - 30 - 40 less demand for credit residential mortgage loans consumer loans - 30 commercial property loans sme business loans corporate loans agricultural loans dairy loans - 40 source : reserve bank credit conditions survey. indeed, banks have begun tightening several lending standards, particularly around serviceability assessments and interest rate margins ( figure g ). much of the tightening that has occurred to - date has been limited to more risky sectors. for some ( such as commercial property, smes and dairy ) this represents a continuation of trends that preceded covid - 19. however, banks have begun to apply more conservative standards to particular sectors exposed to the covid - 19 shock such as tourism, retail, accommodation, and construction. while some tightening is understandable and will reflect the general deterioration in the quality of applications, banks should not become overly cautious and should continue to focus on the long - term prospects of the applicants. figure g : lending standards ( change over past 6 months ) % collateral requirements repayment terms interest markup serviceability requirements covenants other factors % tighter - 10 - 20 - 30 - 10 easier residential mortgage lending - 20 commercial sme business property lending lending corporate lending agricultural lending - 30 source : reserve bank credit conditions survey. emerging risks and structural changes resilience and its corollary, risk management, is not “ once and dusted ”. it is a dynamic process, one that must be continually tested, prepared for and built in the face of unexpected scenarios, and new and emerging risks. today, new risks are emerging as industry structures, technology and environmental factors evolve. the pandemic is a reminder that periodic crises are a fact of life, but that the timing and nature of future crises are notoriously difficult to predict. amongst the many significant challenges facing the financial system over the next decade are cyber risk, fintech, climate risk, financial inclusion and the changing landscape for digital currencies

reputation of new zealand ’ s financial system. our guiding philosophy is : “ same business, same risks, same rules ”. criticality of payment systems payment and settlement systems ( often referred to as financial market infrastructures or fmis ) play a key role in the operation of the financial system by providing the essential services needed to clear payments and financial market transactions. payment systems can vary from the eftpos system, which transacts millions of small retail payments between consumers and businesses every day, through to interbank settlement systems, like esas, operated by the reserve bank, which handles, on average, $ 30b worth of transactions each day. fmis are one of those critical infrastructures – like telecommunications networks, electricity grids and water pipes – which operate in the background and allow for our modern way of life. nobody realises how well they work, until they don ’ t! the danger is that nobody invests in their renewal until it is too late. the banking system has a crucial role to play in supporting sector - wide infrastructural investment, as well as at the individual institution level to interface with fmis. rationing investment in this area is destined to escalate risks and challenges for the banking system. many fmis are systemically important due to the role they play in the financial system and their high degree of interconnectedness with the rest of the system. disruption or failure of any one of these infrastructures could affect the financial system as a whole, and create major solvency and liquidity problems for market participants, as well as disruption for consumers and businesses, making it difficult or impossible to buy or sell goods and services. these systems can also act as the mechanism for transmitting contagion from the failure of a systemically important financial institution, such as a large bank. the new financial market infrastructures ( fmi ) bill will establish an enhanced regulatory regime for the supervision of fmis by the existing regulator, being the reserve bank for payments systems and financial markets authority jointly for settlement systems. the act will provide the bank and the fma with broad information gathering powers, the ability to designate systems as being systemically important, and have enhanced oversight and enforcement powers. finally, one long - term, almost existential issue for the banking system arises from the declining use of cash and the potential for digital currency to be issued by the central bank. while the reserve bank has no immediate plans to issue its own digital currency, it is