S&P says NZ banking outlook stable

Wednesday 14th March 2012

Credit rating agency Standard & Poor’s says New Zealand banks are likely to remain on stable outlook, reflecting steady earnings, a moderate economy recovery, and support from their Australian parents.

Local banks should show relatively low credit losses on the back of strong commodity prices and a pick-up in the Christchurch rebuild. A fall in property prices also helped reduced the risk of an increase, says S&P in a newly published Industry Credit Outlook report.

“Despite mixed earning results in recent years among the larger banks, we believe that the earning trend shows recovery to good levels.

“We expect earnings to remain under pressure, reflecting likely subdued credit growth due to somewhat still-cautious consumer and business sentiment.”

The outlook of New Zealand’s four major banks – Bank of New Zealand, ANZ National, ASB, and Westpac - is closely linked to their Australian parents, which remain exposed to offshore funding and the potential trigger of a downward rating action.

“Potential triggers … could be a significant weakening in the rating on their respective Australian partners, or our assessment that their support to the New Zealand banking subsidiaries has significantly weakened.”

The agency said some local banks face the possibility of a ratings upgrade if forecast capital and earnings are stronger than expected.

“Ongoing consolidation in the sector could benefit some of the smaller financial institutions, if any mergers result in formation of stronger entities,” the ratings company said.

BusinessDesk.co.nz

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