A banking expert believes bad debts may not have peaked yet in New Zealand, as the agricultural sector continues to struggle.
Announcing its annual results last week, Westpac New Zealand called the bottom of the debt cycle, after credit impairments more than tripled in the year ending September, halving its bottom line.
However, Paul Skillender, a partner at PricewaterhouseCoopers, says New Zealand's rural sector poses a strong downside risk to banks' balance sheets.
Australian banks have weathered the economic storm relatively well thanks to fiscal stimuli from the government.
Bad debts doubled to over $A13 million last year, and the industry believes this has now peaked.
But Mr Skillender says bad debts in New Zealand look set to rise due to difficulties faced by the rural sector which is still challenged by high currency.
Mr Skillender says a high court ruling on tax avoidance, which could see banks pay millions in back in taxes, and a scaling back of a government guarantee scheme, could also impact bottom lines this year.
As a result, he believes there will be increased competition amongst banks for deposits, while credit conditions will remain tight for some time, especially for business borrowers.
Analysts and shareholders will be watching closely when New Zealand banks will report their results in the coming weeks.
