Ratings agency Moody's Investors Service said it continued to have a negative outlook on the New Zealand banking system in a fresh report that highlighted the risk for banks from dairy farm lending and higher unemployment. Moody's said its outlook for most banking systems globally was negative and its outlook for New Zealand reflected its concerns about the global economic and financial systems. "Accordingly, impairment levels have risen noticeably so far in fiscal 2009 -- albeit off a low base -- thereby reducing net profit growth and internal capital generation capabilities," said Moody's assistant vice president Marina Ip, adding a rise in unemployment to 7.5% would also add to mortgage borrower stress. "In addition, soft commodity prices will impact exports, and much lower dairy prices for 2009-10 -- compared to the past 2 years -- will hurt dairy farmers, resulting in potential cash flow problems," said Ip. "With agriculture lending comprising 15% of the system's gross loans, the potential impact to bank's delinquency rates will not be insignificant," she said.
"But, despite the challenges it faces, the banking system remains sound and the Reserve Bank of New Zealand (RBNZ) has been proactive in reinforcing financial stability in the system." Moody's rates the four largest banks in New Zealand (ANZ National Bank, ASB Bank, Bank of New Zealand and Westpac New Zealand). Due to their "entrenched position in the banking system," the four rated New Zealand banks' Aa2/Prime-1 ratings carried a stable outlook, Moody's said.
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