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Ratings pressure possible for smaller institutions - S&P

Friday 25th February 2011

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Some smaller financial institutions could face downward rating pressure, particularly those operating in Canterbury, following Tuesday's earthquake.

Standard & Poor's Ratings Services said that while its initial expectation was that most ratings on financial institutions would remain unchanged and New Zealand's financial system would remain stable, some ratings could be subject to downward pressure.

The ratings agency also said it had an initial expectation that the major bank sector remained well placed at current rating levels.

"Our current belief is that the major banks are unlikely to see downward rating pressure stemming from the Christchurch earthquake."

The long term counterparty ratings of the four major New Zealand banks - ANZ National Bank, ASB Bank, Bank of New Zealand, and Westpac - were AA.

S&P said its current rating view concerning the New Zealand major banks was likely to persist as long as it continued to assess that the banks remained core businesses to their AA rated Australian parent institutions.

"For smaller New Zealand financial institutions, be they banks or non-banks, downward rating pressure could emerge, particularly on those institutions that have a greater geographical presence in Christchurch and the surrounding Canterbury region."

It was not clear to what extent business dislocation in Christchurch and surrounding areas would affect the repayment capacity of business and personal borrowers, S&P said.

Nor was it clear to what extent insurance coverage would lessen borrower stress - a factor that may ameliorate its concerns.



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