Slippery slope of home lending
Banking expert Dr David Tripe will explore the potentially dangerous downstream impact of home lending, at a seminar in
Wellington tomorrow (Wednesday).
He will look at the steady increase in banks' lending on housing and how this relates to the balance of payments deficit
and private sector foreign indebtedness.
Dr Tripe observes that the value of housing stock has risen substantially, accompanied by a very considerable growth in
home lending, and explores where the money has come from to fund that lending. “Not from household savings – because
there hasn’t been much of that. Instead banks have had to fund their lending from other sources, particularly from
non-residents whose contribution to our economy has risen dramatically.”
He examines the relationship between that offshore contribution and the balance of payments deficit, noting that a major
contributor to that deficit is the investment account. “And major components of that account are the servicing of debt
to non-residents plus the profits of foreign-owned firms.”
Dr Tripe predicts what could happen if foreign investors become uncomfortable with their holdings of New Zealand dollars
and exit, and if high household spending (rather than saving) continues.
“We could have a slowdown in our ability to absorb foreign funding of the banks (and so a slowdown in housing lending),
and in foreign acquisitions of New Zealand businesses.”
Dr Tripe is Director of Massey University’s Centre for Banking Studies.
The forum will be held on Wednesday 16 August from 12.15 - 1.30 pm at the Museum Room, Turnbull House, Bowen St,
Wellington.
ENDS