Housing market risk to bank profits

Last updated 14:40 13/02/2014

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Standard & Poor's has warned that New Zealand's heated property market is at risk of taking a sharp dive.

The international ratings agency today released its 2014 outlook for the New Zealand banking sector.

It projected that low levels of credit losses would continue over the next two to three years, underpinning the profitability of the major banks.

ASB Bank yesterday reported a record half-year profit of $416 million, which was partly driven by falling impairment charges on bad debts.

However, the report said persistent house-price inflation posed a threat to that scenario, particularly when combined with an external shock to the economy.

The report's primary credit analyst, Nico De Lange, said the risks were reflected in the negative rating outlooks on several local banks and credit unions.

Standard & Poor's said it would continue to monitor the impact of the Reserve Bank's "speed limits" on low-equity home loans, as well as higher capital requirements.

Both are expected to have dampening effects on residential house-price inflation.

Westpac economists expect the property market to start losing some steam this year, with prices stagnating or even declining by the end of 2016.

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- Fairfax Media

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