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International ratings agency Standard and Poor's (S&P) has fired a warning a shot across the bows of 11 New Zealand's banks, because of the high level of private debt.
While highlighting that New Zealand's banks' ratings were "robust", "sound" and "relatively stable" by international standards, there had been numerous domestic and external issues, since the global financial crisis, which had "generally brought on downward rating pressure for the banking system", S&P said in a report released yesterday.
Downgrades by international rating agencies, for countries, banks or companies invariably prompt higher interest costs for those entities as their risk profile is seen to be increasing.
In the report, "New Zealand bank credit ratings remain stable as banks navigate a range of market challenges", S&P analyst Peter Sikora said. Like Australia, New Zealand's private sector was highly indebted, leaving it vulnerable to a downturn in global economic and financial market conditions, and raised concerns about rising house prices.
"A severe [global economic] downturn could result in downward pressure on a bank's stand-alone issuer credit ratings," he said.
However, underpinning the currently stable outlook for the New Zealand banks was the growth of private sector savings, relative to income levels, and a decline in the private sector's appetite for debt.
New Zealand house prices had abated "in an orderly manner" in recent years, more significantly than Australia, where property prices remained more inflated, he said.
However, Mr Sikora noted there had been an increase in buyer activity, supported by the low interest rates environment, prompting a recent modest rise in house prices.
Any sharp fall, or correction in housing prices, remained a key risk for New Zealand bank ratings, he said.
Banks covered in the report, with a variety of A-ratings were the ANZ, ASB, BNZ, KiwiBank, Rabobank and Westpac, those with a variety of B-ratings were Bank of India, the Co-Operative Bank and TSB Bank and the (S&P unrated) Bank of Baroda and Southland Building Society.