More from Moody’s:
Moody’s Investors Service has today revised to negative from stable the outlooks on the ratings of the four major New Zealand banks.
The banks affected are ANZ Bank New Zealand Limited, ASB Bank Limited, Bank of New Zealand and Westpac New Zealand Limited.
At the same time, Moody’s has affirmed the four banks’ Aa3 long-term senior unsecured debt ratings, together with all their other ratings, at their existing levels.
The outlook change follows Moody’s decision to revise to negative from stable the outlooks of their respective Australian parents, Australia and New Zealand Banking Group Limited (Aa2 negative, a1), Commonwealth Bank of Australia (Aa2 negative, a1), National Australia Bank Limited (Aa2 negative, a1) and Westpac Banking Corporation (Aa2 negative, a1), as announced on 18 August 2016.
The change in the four banks’ rating outlooks to negative from stable follows the same change in the rating outlooks to negative for their respective parents.
Moody’s incorporates two notches of affiliate support uplift into the Aa3 long-term ratings of the four banks, given Moody’s assessment of a very high likelihood of support from their Australian parents.
The affirmation of the ratings reflects the strong financial profiles of the four banks. Bank asset quality is currently very strong, profitability has improved, and capital remains robust.
These favorable characteristics provide the banks with a strong buffer to withstand the stress arising from a potentially more challenging operating environment during 2016-17.
Moody’s expects credit conditions for the banks to weaken as credit growth and household leverage continue to rise, increasing sensitivity to shocks, and against a backdrop of weaker economic growth and rising stress in the dairy sector.
A downgrade of the Australian major banks’ a1 baseline credit assessments would likely result in a downgrade of the long-term ratings of the four major New Zealand banks.
Conversely, the outlooks on the four banks are likely to return to stable if the outlooks on their respective Australian parents are revised to stable.
A material weakening in the financial fundamentals of the New Zealand banks would also be negative for the bank’s ratings.
NZ may be a well-managed economy but it has Aussie banks sadly for it.
