SYDNEY The Reserve Bank Of New Zealand said on Thursday defaults in banks' agricultural lending portfolios were expected to increase as the sector faces tough economic conditions due to low prices, high operating expenses and increased debt servicing costs.

"Whilst defaults in banks' agricultural lending portfolios are currently low, they are expected to increase and could accelerate if there is a prolonged period of high costs and low prices," Kerry Watt, director of financial stability assessment and strategy, said in a statement.

The agricultural sector represents 11% of all bank lending in New Zealand.

(Reporting by Renju Jose in Sydney; Editing by Chris Reese)