Standard & Poor's says New Zealand's banking sector is stable, but there's still a risk house prices will fall, and high external debt leaves New Zealand exposed to outside events.
The credit rating agency says it expects some New Zealanders will have difficulty servicing their debt due to the expected mortgage interest rate increases, but non-performing loan levels and credit losses will remain flat.
S&P's financial institutional ratings director Nico De Lange says the agency is monitoring house price inflation very closely, as well as the impact of the Reserve Bank's loan-to-value restrictions.
He says the latest data indicates overall house price increases in New Zealand are sitting at around 9.6 percent, which is still fairly high and hopefully residential house prices will come down to more acceptable norms in the future.
Mr De Lange says anecdotal evidence suggests the Reserve Bank's restrictions are having an impact, but the report also asks what the level that impact is likely to be and whether it will be enough to reduce concerns around house price inflation.
He says how much pressures goes on borrowers will depend on the size of interest rate increases, but it's not something that is concerning S&P at the moment.