S&P revises PSIS outlook to positive from stable, hints at investment grade rating

Standard & Poor’s says it might bump up PSIS’s long-term credit rating to investment grade if the co-operative continues to successfully manage its low-risk and sound credit profile through the rest of the year.

At the same time, S&P said it was revising its credit rating outlook on PSIS to positive from stable. The credit rating agency also affirmed PSIS' BB+ long-term rating - S&P's top speculative, or junk, grade rating - and B short-term rating.

S&P credit analyst Peter Sikora said the positive rating outlook reflected an expectation the ratings could be raised to BBB-, S&P's lowest investment grade credit rating, and A-3 if PSIS continued to successfully manage its low-risk and sound credit profile through to 2011. With the initial Crown retail deposit guarantee scheme ending on October 12, this was a period when the nonbank deposit-taking sector was expected to come under pressure, Sikora said.

PSIS chief executive Girol Karacaoglu said PSIS was "obviously delighted" by S&P's announcement, which it attributed to its prudent management practices and co-operative status.

Karacaoglu recently told interest.co.nz that PSIS, which recently posted a 66% jump in annual net profit to NZ$13.1 million, is waiting to see whether the big banks sign up for the extended Crown retail deposit guarantee scheme before deciding whether it will. The new scheme kicks in from October 12, running until December 31, 2011.

Sikora noted, however, there was heightened competition for retail funding, and the pontential for additional non-bank deposit taker failures to undermine confidence in the sector and affect all market participants

“PSIS’ ongoing commitment to maintaining a low credit risk profile by focusing lending activities on low-risk residential mortgage lending has underpinned its solid financial profile,” Sikora said.

“The low credit risk profile has also helped offset limitations regarding PSIS' concentrated business risk profile, stemming from its single-sector and narrow product focus.”

Nonetheless, he said the outlook could be revised to stable should there be signs deposit support was not as strong as anticipated, or if PSIS was not successful in maintaining its sound financial risk profile.

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