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Property prices to blame for S&P downgrade

Rampant Auckland property prices – as opposed to the banking and finance system itself - are to blame for Standard & Poor’s downgrading of New Zealand’s risk assessment.

Tuesday, August 18th 2015, 3:47PM

by Miriam Bell

On Friday, S&P revised New Zealand’s Banking Industry Country Risk Assessment (BICRA) score from ‘"3" to "4".

It also cut the standalone credit profiles of the country’s four biggest banks - ANZ, ASB, BNZ and Westpac - and downgraded the ratings of seven other financial institutions.

However, these changes were not due to any existing or emerging risks in any of the financial institutions themselves, S&P credit analyst Nico De Lange has emphasised.

In a follow-up presentation to Friday’s announcements, De Lange said the ratings changes were intended to highlight that the risks facing New Zealand’s banking system have increased incrementally.

“This is down to an increased imbalance in the New Zealand economy which largely stems from very strong residential property price growth, particularly in Auckland, over the last three years.”

De Lange said S&P was of the view that there is a risk of a sharp correction in prices and, if that occurred, the impact would be felt by every financial institution in New Zealand.

It was for this reason the ratings agencies had revised its assessments.

However, De Lange said there are only 23 other countries with a higher BICRA score than New Zealand.

This means that, overall, the country’s banking system remains one of the lower risk banking systems globally.

De Lange pointed out that, while the ratings of seven financial institutions were downgraded, the ratings of the remaining 11 – including the four major banks and Kiwibank - were affirmed.

This was because they benefited from group support. For example, the big four banks were all subsidiaries of Australian parent banking groups.

Despite the increased risk posed by property prices, S&P does not think Auckland has a property bubble that is about to burst.

De Lange said S&P believes the risk of a sharp correction to property prices remains low and the economic imbalances were likely to unwind in an orderly fashion.

The Reserve Bank’s imposition of macro-prudential tools was helpful – although 2013’s LVR rules only slowed down Auckland’s housing market temporarily due to the city’s supply and demand issues, he continued.

“We see the RBNZ as pro-active, but in a difficult position because of the need to keep the inflation rate between one and three.

“Interest rates are a tool they use for that. And that means on one side they have got the low interest rates, but on the other they are trying to cool down the property market with macro-prudential tools.”

De Lange said the situation did beg the question of whether the RBNZ was doing enough in a macro-prudential sense.

“I think we are on the same page, more or less, as the RBNZ. Property prices are of concern to them too, so they are likely to have sympathy for us.”

Meanwhile, Prime Minister John Key told media he is confident New Zealand’s financial institutions are strong enough to survive a sharp correction in Auckland’s property market.

Key said the country’s major lenders had assured him that their stress testing showed their respective loan books were strong enough to withstand such a situation.

Tags: ANZ ASB Asteron banks BNZ Kiwibank Macro Prudential Tools RBNZ S&P Westpac

« NZ faces rising financial system risks – S&PLVR restrictions tweaked »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.95 3.29
ANZ 4.44 3.10 3.50 3.84
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.50 2.90 3.24
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.55 2.95 3.29
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.55 2.95 3.25
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.15 3.22 3.85
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 1.95 1.85 2.35 2.45
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 ▲2.29 ▲2.69 ▲2.99
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 3.34 3.34 4.14
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 2.49 2.49 3.29
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 ▲2.89 ▲3.29 ▲3.49
SBS Bank Special - ▲2.39 ▲2.79 ▲2.99
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.29 - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.89 3.19
The Co-operative Bank - Standard 4.40 2.99 3.39 3.69
TSB Bank 5.34 3.30 3.69 4.04
TSB Special 4.54 2.50 2.89 3.24
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.15 3.49 3.89
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.89 3.29
Median 4.54 2.78 2.99 3.29

Last updated: 2 August 2021 9:09am

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