New Zealand is still at significant risk of a sharp correction in property prices, according to Standard and Poors.
The rating agencies said in a report out today that its base-case scenario for Kiwi banks was that medium-term real estate prices stablised current levels, stabilising the asset quality metrics of the banking sector.
Mortgages make up about 60% of the banking system’s loans.
But credit analyst Nico DeLange said there was still a risk of a shock to prices.
“A significant risk remains of a sharp correction in property prices occurring given the uncertain short-to medium term outlook for the global economy. This could potentially lead to a build-up of economic risks, resulting in the lowering of the economic risk score of New Zealand to ‘4’ from ‘3’. Such a change could have a direct impact on the stand-alone credit profile of New Zealand banks, and the issuer credit ratings of banks in New Zealand that do not benefit from group support.”