House prices rising and no recovery in dairy prices both pose threats to New Zealand banks, Standard & Poor says.

The ratings agency released a report into New Zealand banks yesterday, saying a property slowdown could be on the way for Auckland.

Credit analyst for Standard & Poor Nico de Lange said a spike in house prices would increased the vulnerability of banks to a sharp correction.

Standard & Poor worked from a base case that house prices would stablise when adjusted for inflation growth.


"We believe even though house price increases in Auckland remain elevated, some signs are emerging of a slowdown in the country's largest city," de Lange said.

A prolonged slump in dairy prices was another threat to New Zealand's banks identified in the report.

"Should lower dairy prices persist, we believe banks would suffer a modest increase in credit losses, which would moderately cut their profits," de Lange said.

Standard & Poor said the profitability of the New Zealand banking system as of September 2015 remained strong relative to its international peers as reflected in the New Zealand banks' strong core earnings and net interest margins.