Renewed house price rises in New Zealand, accompanied by record household debt, are again threatening the financial stability of the banking system.
Standard & Poor's Global Ratings has published a report called ''Round Three: As Housing Imbalance Resurfaces, New Zealand's Banks Ready Themselves For Further Macroprudential Limits''.
The report says the Reserve Bank found itself preparing for a third round of macroprudential limits in an attempt to once again curtail growing housing imbalances.
While some indicators of financial stability had improved since the Reserve Bank embarked on intervention in 2013, the effect had been narrow. Housing-related imbalances continued to build, highlighting the challenge facing the regulator as numerous cyclical and structural impediments, most outside of the central bank's control, remained unaddressed.
S&P classified the banking sector of New Zealand in group 4 in its Banking Industry Country Risk Assessment. On the scale, 1 is lowest risk and 10 is highest risk.
Other countries in group 4 are the Czech Republic, Israel, Kuwait, Malaysia, Mexico, Saudi Arabia and Taiwan.
The economic risk and industry risk scores were used to determine a bank's anchor - the starting point in assigning an issuer credit rating. The anchor for banks operating only in New Zealand was ''bbb''.
''We consider New Zealand's resilient economy, conservative banking regulation and low-risk appetite support its banking sector.''
Partly tempering those strengths were the country's moderately high private sector debt; material dependence on the banking system's offshore and wholesale funding; imbalances resulting from strong growth in private sector debt and house prices; and New Zealand's high external debt and current account deficit, S&P said.
