Australia and New Zealand banks face rising housing, global risks

Overall performance will remain stable, says S&P Global Ratings.

The banking outlook for Australia and New Zealand is expected to remain stable, though challenges such as housing affordability, global trade uncertainties, and emerging risks may impact their growth trajectories.

In its Global Banks Country-By-Country Outlook 2025 report, S&P Global Ratings noted that rising interest rates and evolving regulatory measures could further shape the performance of banks in both countries amidst an uncertain global economic environment.

In Australia, sustained pressure on housing affordability, driven by elevated property prices and rising mortgage rates, is expected to constrain credit growth.

Additionally, heightened regulatory scrutiny and evolving macroeconomic conditions may pose challenges to banks' profitability and operational strategies.

Despite these headwinds, credit growth is projected to moderate to 4-5% in 2025, limited by high household debt levels and mortgage rates, which are anticipated to increase by an average of 1.5 percentage points by the end of 2024.

In New Zealand, rising housing prices continue to exert pressure on borrowers, increasing the risk of defaults for banks.

Credit growth in the housing sector is expected to slow as borrowers adjust to higher interest rates.

However, on a positive note, S&P forecasts a rebound in New Zealand's economy, with real GDP growth expected to rise from -0.2% in fiscal 2024 to 1.7% in fiscal 2025 and 2.5% in fiscal 2026.

Inflation is projected to fall within the Reserve Bank of New Zealand's target band of 1% to 3% by fiscal 2025, where it is expected to remain for the subsequent two years.