S&P downgrades NZ's banking industry score to "three" from "two"

Thursday 10th November 2011 3 Comments

Standard & Poor's has revised its view of the New Zealand banking industry to three out of ten from two on a scale where one is the strongest, putting it on a par with Italy, Korea, the UK and the US.

The credit rating company said it has revised its Banking Industry Country Risk Assessment on New Zealand to group three from group two. It also revised the economic risk score to three from two, while an industry risk score of four was assigned.

New Zealand's high level of private sector debt, at 150 percent of gross domestic product, and the concentration of lending to agriculture are cited as reasons for the downgrade.

Offsetting factors are conservative lending and underwriting standards, law that supports creditors and low levels of non-performing assets.

The industry score for New Zealand of four in the analysis reflected that the country had conservative regulation. The regulator monitored banks closely and frequently.

S&P classifies the New Zealand government as being supportive of the banking system.

S&P also noted an absence of innovative, complex and risky products in banking in this country and limited high-risk lending.

But bank's dependence on offshore borrowing weakened the New Zealand banking system.

"We consider than these weaknesses are partly offset by the potential funding support from the Australian parents of the major banks and the government and regulator," S&P said.

BusinessDesk.co.nz

Comments from our readers

On 10 November 2011 at 2:33 pm Siena said:

Kiaora. NZ’s medium term outlook with that High Private Sector Debt. The economy at the moment for NZ is that we have come through this more sound we’ve come through the RWC we’ve had our high commodity prices – NZ is in for a long period of austerity and the minute we get out of this election cycle there will emerge some harsh realities. By the looks of things. the harsh reality has begun pre-election.

On 11 November 2011 at 10:31 am SteveH said:

The root cause of NZ's debt problem is its ludicrously overinflated residential property market. Vested interests and a property-friendly tax system have for many years encouraged kiwis to chase prices higher, accumulating high mortgage debt as a consequence. The banks can't fund all this inflated property lending from local deposits, so they borrow overseas. Property is NZ's Achilles' heal. Quite why a a country that is small and only modestly prosperous in the context of OECD mean and median figures for absolute and per capita GDP has some of the world's priciest real estate is a question neither politicians nor populace appear willing yet to confront.

On 11 November 2011 at 12:37 pm howie said:

To earn super profits the banks seek to monopolise risk assets and get offical blessing for this.When they get in trouble, tax payers bail them out. Increase the ratio of shareholder funds to borrowings and let the market encourage banks to on sell risk and the rewards to others who won't get bailed out. That there is no public market for commencial paper is one of the symptoms of a Reserve Bank that is asleep at the wheel; and banks are duopolies. KiwiBank is a glorified credit union; where is our Pimco? A bond fund where Mom and Pop can get a reasonable risk/ return investment. Howie