The Reserve Bank of New Zealand has warned that banks may need to raise up to NZ$40 billion in wholesale long-term funding offshore over the next three years to stay within their core funding ratio requirements if lending growth remains at eight year highs.The banking regulator said credit growth had accelerated across the household, agricultural and business sectors over the last 18 months to the point where aggregate credit growth was now outpacing deposit growth."This may induce banks to compete more aggressively for retail deposits, or to increase their reliance on long-term wholesale funding, either of which could place upward pressure on bank funding costs," the RBNZ said in its Financial Stability Report, adding that higher funding costs would keep lending rates up relative to the official cash rate and short-term wholesale rates."Bank lending is growing more rapidly than deposits. If this trend is maintained, banks may lower their CFRs from current levels. Alternatively, banks may choose to protect their CFRs by issuing long-term wholesale funding to fund new lending and to replace long-term funding as it approaches maturity," the bank said."It is estimated that locally incorporated banks will need to issue around NZ$40 billion of long-term wholesale funding in the next three years to maintain CFRs if lending and deposit growth persist at current rates," it said."Banks could also maintain their current CFRs by competing more aggressively for deposit funding, or by reducing the rate of lending growth."The bank noted a 50 basis point rise in offshore funding costs over the last year, relative to domestic wholesale rates.Elsewhere, the bank noted that funding pressures may be worsened by a new policy imposed by the Australian Prudential Regulatory Authority on the big four Australian-owned banks' parents in late 2015."Funding pressures for the Australian-owned New Zealand banks may also be exacerbated by changes to requirements imposed on parent banks under APRA's Prudential Standard APS 222," it said."These changes give Australian parent banks five years from the start of 2016 to reduce non-capital exposures to their New Zealand operations to less than five per cent of tier one capital. In addition, banks that had non-capital exposures to their New Zealand operations in excess of the five per cent limit at end-June 2015 must reduce the percentage excess by at least one-fifth each year over the five year transition period," the RBNZ said.