RTTNews - Thursday, Moody's Investors Service in a report said the outlook of the banking system in New Zealand continues to be negative, in line with outlook placed on most other banking systems, which are also facing a challenging future.

The outlook represents Moody's expectations of fundamental credit conditions in the banking system for the next 12 to 18 months.

Marina Ip, assistant vice president at Moody's Sydney office said from a macro perspective unemployment in New Zealand is expected to rise to the government's forecast of 7.5% from the current 5%, which is likely to add to mortgage borrower stress.

Moreover, weaker commodity price would affect exports and lower dairy prices, which in turn would also affect banks. With agriculture lending comprising 15% of the system's gross loans, the potential impact to bank's delinquency rates will not be insignificant, Ip noted.

Moody's said the loan growth has been flat so far in the year, but borrower concentrations levels are expected to remain high for those banks funding large corporates.

But, despite the challenges it faces, the banking system remains sound and the Reserve Bank of New Zealand (RBNZ) has been proactive in reinforcing financial stability in the system, Ip added.

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