PSIS aims to register as bank, seeks to bolster credit rating

Thursday 18th June 2009

PSIS, the mutual that evolved out of the Public Service Investment Society, wants to register as a bank while retaining its status as a cooperative, betting that rivalry for customers will squeeze margins over the next 10 years.

The not-for-profit mutual may begin offering banking products to small businesses that are existing personal customers. To qualify as a bank, PSIS needs to lift its credit rating to at least BBB- from BB+ currently to satisfy the central bank that it is an investment-grade business. Southland Building Society managed to retain its building society status when it registered as a bank last year.

“We really see potential” to offer more and better products to our customers, chief executive Girol Karacauglu said when announcing the annual results in Wellington yesterday. “It’s critical for us to remain as a cooperative” as that’s part of our identity, he said.

PSIS would join SBS, which obtained its licence last October and Pyne Gould Corp. in pursuing a transformation into a bank, coming under the Reserve Bank’s new prudential regime, which will tighten requirements on measures such as liquidity for financial institutions.

The central bank’s new regime will make it tougher for non-bank deposit takers to maintain their balance sheets by boosting the minimum capital ratio to 8% if they have a credit rating, or 10% if they don’t. PSIS easily qualifies on that basis, having a capital adequacy of 14.6% for the year ended March 31.

The Reserve Bank called for submissions on its draft regime last week, which is also expected to force greater disclosure among non-bank deposit takers.

Standard & Poor’s last reviewed PSIS in April last year, and reaffirmed its BB+ rating with a stable outlook. The cooperative could lift its rating with a “sustained and material improvement in financial performance” or if it morphed into a more robust and diverse business without weakening key credit factors, S&P said in its report.

Businesswire.co.nz

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