Any housing bubble may hit ratings, Fitch warns banks
As rising house prices continue to raise the ugly spectre of an asset bubble forming, the major banks are being threatened with a ratings downgrade - but there's no cause for panic yet.
Global ratings agency Fitch issued a special report yesterday outlining the growing challenges for New Zealand's major banks. It warned that a potential bubble in the highly competitive and heated housing market could lead to a ratings downgrade.
Systemic risks caused by high household debt and low national savings rate could also threaten the stability of the financial system.
The latest Quotable Value figures, issued yesterday, show national house values rose again in March and are now 3.3 per cent higher than the previous market peak of late 2007.
Massey University banking expert David Tripe said the local banks' relatively high exposure to housing was an ongoing point of concern.
But he questioned whether house prices were actually rising rapidly by historic standards.
"I don't think there are any grounds to panic in the short run," he said. "It's fair to say that they [Fitch] are being cautious, and the current environment may not persist forever."
The Fitch report said the banks' healthy profits, strong capitalisation and reserves for bad loans would provide a buffer if house prices did fall.
New Zealand's "big four" Australian-owned banks - ANZ, ASB, BNZ, and Westpac - are all currently rated AA- with a stable outlook.
Fitch suggested it would look favourably on regulatory tweaks the Reserve Bank is considering. The measures include a counter-cyclical buffer to strengthen capital levels, and a rise in core funding ratios.