As part of their Asia-Pacific banking outlook series, S&P Global Ratings analysts discussed their forecasts for New Zealand’s banking sector.
During a live webcast last week, the key points made were that the New Zealand credit cycle appears to be maturing and risks stemming from rising house prices and household debt levels are expected to stabilize this year.
Bank performance is expected to remain strong although they forecast credit growth within New Zealand’s banking system to slow.
Factors contributing to the stabilization include the expected continuation of increasing residential mortgage rates, funding gaps, margin recovery and macro prudential measures reducing the number of participants in the mortgage market.
Analysts said bank margins are facing a number of headwinds including higher funding costs; higher ‘core’ funding requirements; and likely higher capital requirements. They expect slower lending growth to help meet some of the funding requirement.
Financial Services Ratings associate director, Andrew Mayes said, "We don't expect to see house prices fall, but we do expect them to slow," as the more recent round of restrictions appear to have had an impact.
"Other indicators of heightened risk within the system still remain," he continued, including interest only loans, household debt and limits to the extent of the Reserve Bank’s influence, particularly if migration remains strong and housing supply remains insufficient.
Mayes said he doesn’t see debt-to-income restrictions being introduced during an election year.