The New Zealand housing market needs to cool further and credit growth needs to slow to remove risks to the wider banking system, Standard & Poor's says.
In an update on New Zealand's banking sector, the credit rating agency noted risks from house price inflation and credit growth had stabilised this year, with the third round of the Reserve Bank's loan-to-value ratio restrictions biting into demand for residential property investor mortgages and banks tightening their own credit since late 2015.
While that was a start, S&P director of financial institution ratings Nico de Lange told a webcast that the agency needed to see that trend continue before it could comfortably say risks to the overall banking system had abated.
"It's more of a longer-term prospect, not within the next 12-to-18 months, and the key drivers will be house prices and credit growth that contribute to it," de Lange said. "Given the current environment, we're of the view that there still needs to be some cool down in these factors to take it to the next level."
New Zealand's rapid house price appreciation has been a concern for the Reserve Bank for several years, prompting it to reach into its macro-prudential toolkit and impose restrictions on highly leveraged lending as a means to strip out property demand exacerbated by a shortage of housing stock.
