Risk of property price fall: S&P

The rating agencies said in a report out today that its base-case scenario for Kiwi banks was that medium-term real estate prices stablised current levels,  stabilising the asset quality metrics of the banking sector.

Mortgages make up about 60% of the banking system’s loans.

But credit analyst Nico DeLange said there was still a risk of a shock to prices.

“A significant risk remains of a sharp correction in property prices occurring given the uncertain short-to medium term outlook for the global economy. This could potentially lead to a build-up of economic risks, resulting in the lowering of the economic risk score of New Zealand  to ‘4’ from ‘3’. Such a change could have a direct impact on the stand-alone credit profile of New Zealand banks, and the issuer credit ratings of banks in New Zealand that do not benefit from group support.”