New Zealand banks have high levels of exposure to the volatile housing market, according to a report published this morning.
Almost half of all bank assets in New Zealand are now exposed to the housing market, up from just above 40 per cent five years ago before thehousing market boom, an analysis of bank disclosure statements by investors' website interest.co.nz shows.
This is significantly above the 39 per cent exposure that the same banks have in Australia.
"If there is a crash in the housing market - represented by a drop in prices of around 30 per cent - and unemployment rises as well, banks face the risk of being big losers on mortgages and bad debts", said interest.co.nz's managing editor Bernard Hickey today.
"Clearly the situation is not as critical as the one faced in the US - our banks are facing much less risk than many American ones were last year", he said.
In the US, banks and other lenders suffered big losses in 2007 in the so-called "sub prime" housing market - loans made to low-income owners of overvalued properties who couldn't keep up with their repayment schedule and ultimately defaulted.
"The most interesting part of our research was seeing how the level of exposure had risen here over the past five years", said Hickey.
"The total value of bank mortgages has doubled from $74.5 billion in 2003 to $148.3 billion at the end of 2007."
The most exposed major bank is ASB, which had 63.3 per cent of its assets in mortgages in the December quarter of 2007, the financial information website estimated.
