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Kiwibank on notice by S&P

Kiwibank on notice by S&P

(24 May 2013 – New Zealand) If Standard & Poor’s (S&P) follows through with its threat to cut the credit rating of state-owned Kiwibank, higher wholesale funding costs would paint a grim picture for the bank.

S&P warned Kiwibank and its parent company, New Zealand Post on Tuesday when it downgraded its credit outlook from stable to negative.

This means the bank has a one-in-three chance of its rating being lowered over the next two years.

Kiwibank had its rating lowered by S&P in October from AA-to A+, putting it one notch below the four major Australian-owned banks.

If the rating was cut again it would be the lowest level the bank has ever been rated at by S&P.

Eight financial institutions including TSB Bank, Heartland Bank and the Co-operative Bank were moved from stable to negative outlooks last Thursday.

S&P said the downgrades were based on concerns about New Zealand's economic vulnerabilities including its material dependence on external borrowings, persistent current account deficits, and recent strong growth in house prices.

'In our view, this increases the risk of a deterioration in New Zealand banks' credit qualities,' the ratings agency said at the time.

It maintained stable ratings for the Australian-owned banks and Kiwibank then because of support from their parent companies.

But a spokesman for S&P said it had subsequently revised its view on Kiwibank because of the pressures Kiwibank's stand-alone credit profile could place on the rating of its parent New Zealand Post.

Kiwibank represented about 70 percent of the group's consolidated earnings, the S&P spokesman said.

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