Non-Performing Housing Loans Increase, Monthly Mortgage Arrears Decline

Highlights:

• Non-Performing Housing Loans Surge: RBNZ reports a NZ$137 million increase in non-performing housing loans, reaching NZ$1.9 billion in April, marking a 7.8% year-on-year rise.
• Decline in Mortgage Arrears: Despite remaining 14% higher than last year, mortgage arrears have decreased for the second consecutive month, with 21,700 overdue home loans.
• Rise in Insolvencies and Liquidations: Business insolvencies increased by 30% year-on-year in April, particularly affecting the construction and property sectors, with a notable rise in company liquidations.

Rise in Non-Performing Loans

The Reserve Bank of New Zealand (RBNZ) reported that non-performing housing loans increased by NZ$137 million in April, reaching NZ$1.9 billion. This marks a 7.8% rise year-on-year, equating to NZ$797 million. It is the second-largest monthly increase since June 2020. The rise in non-performing loans reflects the impact of increasing mortgage rates since late 2021, which has strained household finances. However, these loans are still below historically high levels.

Mixed Performance in Commercial and SME Loans

According to the RBNZ figures, non-performing commercial loans decreased by NZ$7 million or 1.4%, bringing the non-performing loans (NPL) ratio to 1.09%. Conversely, non-performing loans for small and medium enterprises (SMEs) rose by NZ$8 million or 0.8%, with the NPL ratio now at 1.19%.

Cautious Mortgage Applicants

Data from credit bureau Centrix revealed a decrease in mortgage arrears for the second consecutive month in May, though they remain 14% higher than the previous year. There are currently 21,700 overdue home loans, representing 1.45% of all home loans, a decrease of 400 from March. Mortgage applications have also declined as borrowers remain cautious due to the stagnant housing market, according to Centrix Managing Director Keith McLaughlin.

Increase in Insolvencies and Liquidations

The economic climate has adversely affected companies, with insolvencies rising. In April, there were 203 insolvencies, a 30% increase from the 156 recorded in the same period last year. The construction sector accounted for 22% of these insolvencies, followed by 17% from the property industry. Additionally, company liquidations saw a 19% year-on-year increase, with 193 businesses liquidating in April compared to 138 the previous year. Notably, the manufacturing sector experienced its highest monthly liquidation total in five years, with 14 companies going under.

Rising Business Credit Demand

Despite these challenges, business credit demand rose by 12% compared to the previous year, with the hospitality and retail sectors seeing the most significant increases. This uptick suggests a cautious optimism among businesses seeking to navigate the current economic conditions.

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