Moody’s downgrades NZ, Australian banks
(19 August 2016 – Australia) Moody's Investors Service has revised its outlook on New Zealand’s four major banks from stable to negative.
The banks affected by the revision include ANZ Bank New Zealand, ASB Bank, Bank of New Zealand and Westpac New Zealand.
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.
According to a statement from the ratings agency, the outlook change follows its decision to revise to negative from stable the outlooks of their respective Australian parents, Australia and New Zealand Banking Group (Aa2 negative, a1), Commonwealth Bank of Australia (Aa2 negative, a1), National Australia Bank (Aa2 negative, a1) and Westpac Banking Corporation (Aa2 negative, a1).
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 favourable 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.
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