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NZ bank ratings unchanged after Fitch review

Monday 18th April 2011

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Credit rating company FItch has released a report on New Zealand banks which leaves their ratings unchanged at levels that compare well with international banks.

Fitch notes that the operating environment for New Zealand banks has been challenging since the middle of 2008 and says the earthquakes in Christchurch have constrained economic growth.

It also comments on New Zealand bank's reliance on wholesale funding, particularly from offshore.

But Fitch says that New Zealand's four largest banks are owned by Australian banks that recently had their ratings affirmed.

"Fitch believes that there is an extremely high probability that the Australian parent banks would be willing and able to provide support should it be required.

"Fitch also considers there to be a moderate probability that the Reserve Bank of New Zealand (RBNZ) would provide direct support to its four largest domestic banks, if required."

The four biggest banks are ANZ National, BNZ, ASB and Westpac.

All four banks are supervised by the RBNZ and are also subject to a degree of oversight by the Australian Prudential Regulation Authority, Fitch said.

"Asset quality, capitalisation and profitability remain strong. However, a dependence on wholesale funding, particularly from offshore markets, remains a risk," Fitch said.

Improvements were taking place, with the RBNZ requiring that banks fund at least 65% of their loan books with customer deposits and long-term wholesale funding instruments such as longer-dated term debt and covered bonds.

This funding ratio requirement will increase to 70% in July 2011 and 75% in 2012.

Regulatory capital ratios of New Zealand banks compared well with international peers particularly when the relatively strict requirements of the RBNZ, such as higher deductions for items like dividend payments, are taken into account, Fitch said.



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