Housing bubble NZ's biggest banana skin

Banks fear the risk of an Auckland housing bubble. Photo / iStock

The risk of an Auckland housing bubble, followed by a large-scale market downturn, is a common concern in the local banking industry, a survey suggests.

PwC's annual Banking Banana Skins report found this country's banking industry was the most optimistic in the world, with the lowest levels of anxiety and highest levels of preparedness of the 52 countries surveyed.

But a New Zealand-specific concern that was "much commented on" by respondents was the risk of a housing bubble driven by quantitative easing, PwC said.

Quantitative easing (essentially money printing) in places like Europe has contributed to lower wholesale interest rates - what banks pay to source funding - which has in turn helped to drive mortgage rates down to some of the lowest levels seen in decades, fuelling borrowing.

"The heated state of New Zealand's largest property market, the Auckland market, and the likelihood of a market correction within that timeframe [two to three years] pose earnings risks and the prospect of some instability," one risk manager, who wasn't named, said in the report.

A third of Auckland suburbs now have an average house price of more than $1 million, according to QV figures released this week.

EXPLORE THE SUBURBS: APP USERS TAP HERE FOR INTERACTIVE

PwC's Sam Shuttleworth said active measures - such as loan-to-value ratios - had been introduced to mitigate the risk of a housing downturn.

The PwC survey found the top five greatest risks facing New Zealand's banking industry were technology, social media, the macro-economic environment, conduct practices and the pricing of risk. The survey, conducted in September and October, canvassed 672 respondents in 52 countries.