Global credit rating agency Standard & Poor's has
put eight local banks on notice over the rising risk of a
housing bubble bursting in New Zealand.
Smaller lenders Cooperative Bank, Heartland Bank, TSB Bank,
Credit Union Baywide, Credit Union South, First Credit Union,
New Zealand Association of Credit Unions and Police and
Families Credit Union have all had their outlooks dropped to
negative from stable, giving them a one-in-two chance of
being downgraded in the next two years if the country's
economy deteriorates, S&P said in a statement.
The outlook for bigger lenders, including ANZ Bank New
Zealand, ASB Bank, Bank of New Zealand, Westpac New Zealand,
Bank of India (New Zealand), Rabobank New Zealand and
Kiwibank, was left unchanged due to expected support from
The rating agency said persistent current account deficits
and a heating property market were threats to the New Zealand
economy. New Zealand's current account deficit is forecast to
keep widening to 6.5 per cent of gross domestic product by
2017 as trade surplus from exported goods falls in the wake
of the drought and the deficit from imported services remains
"We consider that there is an increasing risk that a sharp
correction in property prices could occur if there is a
weakening in the country's macroeconomic factors," S&P
If those threats materialise, "banks' credit losses could
rise materially, given that there was a build-up in housing
prices and domestic credit over the period preceding the
global financial crisis," it said.
"We consider that such a scenario would have a high impact on
the banking sector and the financial strength of the balance
sheets of New Zealand banks."
Finance Minister Bill English said this morning "it was vital
to act" on New Zealand's housing bubble in yesterday's Budget
to avoid it bursting and causing widespread destruction, as
happened in the United States, Spain and Ireland.
The Government aims to build 39,000 new houses in Auckland
over the next three years which, on top of the gathering pace
of the Christchurch rebuild, it hopes will provide momentum
to the economy, increase its revenue and boost job numbers.
English made his comments on Radio New Zealand this morning.
"What we've learned from the global financial crisis is that
in countries like Spain and the US, where they've had housing
bubbles, is that there is widespread destruction when those
bubbles burst, and Ireland has been the same.
"We must learn the lessons from those countries that 12-15
per cent compound house price increases are dangerous for an
economy and that's why we need a collective will to help
solve this problem.
"The measures that we're putting in place aren't going to
solve the problem overnight but they are a very definite step
in the direction of increasing supply."
An $18 billion residential rebuild in Canterbury is seen as
the backbone for New Zealand's economic growth over the
coming four years, and the Treasury ramped up its forecast
housing inflation, which is seen peaking at a 7.1 per cent
annual pace this year and the next.
New Zealand's bubbling property market is seen as a threat to
the country's financial stability, with the International
Monetary Fund yesterday saying local housing is about 25 per
cent over-valued and the Reserve Bank last week threatening
to introduce restrictions on low equity loans if they pose a
"significant risk" to the system.
S&P said some of the Reserve Bank's planned initiatives
to managing banking sector risks could mitigate the country's