S&P sounds warning to some lenders

S&P says New Zealand’s economic vulnerabilities, including a material dependence on external borrowings, persistent current account deficits, and recent strong growth in house prices, could escalate.

“In our view, this increases the risk of a deterioration in New Zealand financial institutions’ credit qualities.”

It says it may lower the institutions on negative outlook by one-to-two-notches within the next two years if economic vulnerabilities worsen.

“We consider that this risk is heightened by New Zealand’s material dependence on external borrowings and persistent current account deficits, in the backdrop of an uncertain short-to-medium term outlook for the global economic recovery.

“Furthermore, we note recent strong growth in house prices (particularly in Auckland).   Consequently, 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.

“For example, should there be a further widening in current account deficit, or a weakening in terms of trade, this could heighten the risk of a sharp depreciation in currency, which may affect confidence in the housing market, particularly if accompanied by a significant rise in unemployment.

“If these were to occur, 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.”

S&P says that the Reserve Bank’s planned initiatives to manage banking systemic risks could mitigate some of these vulnerabilities.  

“We could revise the outlooks back to stable if we consider that the uncertainties around the structural imbalances have abated.”

Its outlooks on seven other banks remain unchanged. These include; ANZ, ASB, BNZ, Westpac, Bank of India, Rabobank and Kiwibank.
S&P’s views here remain unchanged reflecting support from their respective parents.

Comments from our readers

On 18 May 2013 at 11:03 am John said:

Too often in criticism of NZ's current account deficit there appears to be a lack understanding that whether it is bad or not depends on the use to which the deficit is being put.
If it is being used to build up the country's economic strength then it can be perfectly acceptable. It is questionable whether expenditure on Christchurch's rebuilding falls into this category.

On 22 May 2013 at 1:50 pm Richard the Third said:

S&P's assertion that the property mini boom mainly in Auckland may, if it rapidly cools have a devaluing effect on the NZ dollar.This idea ignores the fact that foreign and expats buyers are a significant force in the market, to me this means a lower NZ dollar will attract more foreign buyers ie more competition - higher prices.

S&P sounds warning to some lenders

Ratings agency Standard and Poor’s has revised its outlook on some banks and credit unions moving their ratings from stable to negative. This means they each could be facing a ratings downgrade.

Friday, May 17th 2013, 10:56AM 2 Comments

Comments from our readers

www.GoodReturns.co.nz