NZ economy gets stable outlook from Moodys
Moody's has maintained its stable outlook on the New Zealand banking system, but warns the risk of an asset bubble is still a key concern.
The international ratings agency said tighter regulation had prompted banks to reduce their dependency on wholesale funding, which was still a "key sector weakness" at 32 per cent of total funding.
In 2009, prior to the new capital requirements, it was 41 per cent.
Moody's Investors Service assistant vice-president Daniel Yu said margins would come under pressure through price competition and the shift to fixed-rate mortgages.
"Nonetheless, bottom-line profits should be supported by mid to high single-digits percentage point loan growth over our outlook horizon," he said.
"Under this circumstance, Moody's expects net earnings retention will outstrip loan growth to help banks maintain their robust capitalisation."
Yu said the four major banks - ANZ, ASB, BNZ and Westpac - had strong support from their Australian parents, while Kiwibank was supported by a guarantee from the government-owned New Zealand Post.
The stable overall outlook was in line with the the banks' average a3 standalone financial strength ratings, and their Aa3 long-term issuer ratings.
The ratings house also upheld its Aaa grade on the country's economy, which it said was supported by the Christchurch rebuild activity and healthy interest rates.
It forecast GDP growth would average 2.1 per cent in 2013, and 2.6 per cent in 2014.
"Even though rising house prices and high household indebtedness reflect some domestic imbalances, Moody's does not expect them to pose significant risks to our outlook in the coming 12-18 months," Yu said.
The impact on the banking system was mitigated by some of the Reserve Bank's recent measures, as well as the banks' own capital buffers.
Yu said it was reassuring that credit growth was still far below the previous peak seen before the global financial crisis, and was broadly in line with New Zealand's economic fundamentals.
However, Yu said the risk of an asset bubble triggered by a lending boom remained a "key credit concern", with interest rates expected to remain below the historical average.
The Reserve Bank has held the official cash rate at its historic 2.5 per cent low for more than two years, and is not expected to begin raising it until the March quarter of next year.
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