New Zealand banks should be able to absorb any bad loans from borrowers under pressure as interest rates start climbing this year, maintaining their sound asset quality levels, Standard & Poor's Ratings Services said in its 2014 outlook for the New Zealand banking sector.
New Zealand's central bank is this year expected to start hiking interest rates for the first time in almost four years, starting next month and continuing through 2015. The country's benchmark interest rate has been on hold at a record low 2.5 percent since March 2011 as the central bank sought to stimulate activity through cheap credit. Rates were last raised in July 2010.
"We expect mortgage interest rates to increase in 2014," Standard & Poor's said in its 2014 outlook. "Banks in New Zealand should be able to absorb such increases at the current rating level, noting that borrowers with stretched debt positions could experience debt-serving problems."
The credit rating agency forecasts asset-quality levels for the New Zealand banking system will remain sound at around their current levels with non-performing loan levels and credit losses remaining flat after peaking at about 2.1 percent and 0.8 percent in 2009 to 2010 respectively following the global financial crisis.
Still, S&P said persistent house price inflation could heighten the risk of a sharp property price correction in the future. It expects central bank measures to limit high-debt mortgage lending may have a dampening effect on house price inflation, while rising mortgage interest rates and a pickup in housing construction should also reduce pressures.