Banks could feel ripple effects
The stability of New Zealand’s banking sector is under scrutiny as financial experts highlight potential vulnerabilities linked to ongoing turmoil in the global banking sector.
While the immediate threat to local banks appears minimal, the ripple effects of a significant downturn in commercial real estate values internationally could pose challenges, according to a banking expert at Massey University.
Claire Matthews (pictured), an associated professor at the university, told stuff.co.nz that the local banking sector could face difficulties if high interest rates and economic fluctuations adversely impact businesses and property owners.
But she also noted that New Zealand banks have less exposure to commercial real estate compared to their US counterparts, thanks to a robust residential lending market.
“I don’t think in general that New Zealand banks have anything like the exposure to commercial real estate that some of the banks in the US have,” said Matthews. “Because of the very strong residential market and the very strong residential lending portion that New Zealand banks have, commercial isn’t as big a deal.”
Matthews went on to note that the profitability of New Zealand banks has acted as a buffer against potential sector-specific shocks.
“That’s partly why it’s important for them to be profitable, so if there is a sector that goes a bit haywire, they have the ability to cope with that,” she said.
American banks stand to lose US$160 billion from the impact of elevated interest rates on commercial real estate and other asset classes, according to a study by the United States National Bureau of Economic Research.
The same study indicated that as much as 20% of commercial property loans in the US are at risk of defaulting.
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