Banking system 'sound', faces negative outlook

Thursday 13th August 2009

New Zealand’s banking system is ‘sound’ and the central bank has taken steps to ensure its stability, though rising unemployment and weaker farm earnings mean the outlook “continues to be negative,” Moody’s Investors Service says.

"Impairment levels have risen noticeably so far in fiscal 2009, albeit off a low base, thereby reducing net profit growth and internal capital generation capabilities," said Marina Ip, an assistant vice president at Moody's in Sydney.

“Given the downturn, loan growth has been flat so far this year, while borrower concentration levels are to remain high for those banks funding large corporates,” Ip says in her report.

The dim outlook is in step with Moody’s assessment of the banking system globally, which faces “a challenging future” given the weakness in the worldwide economy.

Moody's rates New Zealand’s four biggest banks - ANZ National Bank, ASB Bank, Bank of New Zealand and Westpac New Zealand at Aa2 with a stable outlook, reflected their “entrenched position in the banking system.”

Ip said with the New Zealand jobless rate forecast to peak at more than 7%, unemployment “will likely add to mortgage borrower stress."

Weaker prices for the nation’s commodity exports “will hurt dairy farmers, resulting in potential cash flow problems," Ip said. “With agriculture lending comprising 15% of the system's gross loans, the potential impact to bank's delinquency rates will not be insignificant."

Still, the nation’s banking system “remains sound” the Reserve Bank of New Zealand “has been proactive in reinforcing financial stability in the system," she said.

Businesswire.co.nz

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