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International credit rating agency Moody's Investor Services sees a negative outlook for Australian-based banks, but says the New Zealand banking system is sound.
Gloomy aspects of its outlook reflected the impact of the slowdowns in global and domestic economies.
"The slowdowns are clearly making themselves felt on the performances of banks in Australia and New Zealand, but the systems in both countries remain very sound," said Jerry Chien, managing director of Moody's financial institutions group in Asia Pacific.
But ratings outlooks varied, between stable and negative, he said in a statement.
Chien was speaking on the release of Moody's latest annual Asian Banking System Outlook.
The report said that in New Zealand, the banking system remained sound, despite the challenges it faced.
"Customer deposits have grown faster than loans so far in 2009, in stark contrast to previous years."
Regulatory developments continued to support financial system stability, but New Zealand had a weakening local economy that was relatively small and narrow, which made it vulnerable to external shocks.
The property market had declined over the past year, with house prices falling 9 per cent in 2008.
Because mortgage insurance was not common in New Zealand, this left the banks exposed to property market reversals, the report said.
"That said, the loan-to-value ratios of the rated banks indicate there is some buffer for a fall in property prices before any loan loss materialises," the report said.
On the other hand, New Zealand corporate asset quality remained strong, as companies have de-geared in recent years.
"But material stress is appearing in the country's large dairy sector as a result of lower milk prices and high leverage present in some recent farm conversions and corporatisations".
- NZPA
