Moody's puts the major NZ banks on review for a possible downgrade

Credit rater Moody's has placed all the major NZ banks that are subsidiaries of Australian banks on review for a possible ratings downgrade. This follows similar action they have taken on those Australian banks.

These four banks currently have an investment grade rating of Aa2.

The review will be completed before mid May 2011.

Here is their announcement.

Moody's Investors Service has placed on review for possible downgrade the Aa2 long-term senior unsecured debt and deposit ratings of New Zealand's four major banks: ANZ National Bank Limited, ASB Bank Limited, Bank of New Zealand, and Westpac New Zealand Limited.

Other ratings placed under review include:

- the C+ BFSR of the banks, which reflect their stand-alone credit profiles and equate to a baseline credit assessment of Aa3

- Long-term senior unsecured debt and deposit ratings of Aa2

- Long-term subordinated debt ratings of Aa3

- Junior subordinated debt ratings of A1 (in the case of ANZ National)

- Preferred stock ratings of A3 (in the cases of ASB Capital Limited, BNZ Income Securities Limited, BNZ Income Securities 2 Limited)

The short-term ratings of Prime-1 were affirmed with a stable outlook.

There is no impact on the Backed Aaa ratings of debt securities the banks issued between 2009 and 2010 under the New Zealand Government's wholesale funding guarantee facility.

At the same time, WestpacTrust Securities NZ Limited's senior unsecured rating of Aa1, and WestpacTrust Capital NZ Limited's subordinated debt rating of Aa2, have also been placed on review for possible downgrade, in line with the rating action on their guarantor Westpac Banking Corporation.

The review follows a similar action on the banks' Australian parents:
Australia and New Zealand Banking Group Limited (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Limited (NAB) and Westpac Banking Corporation (WBC) respectively.

"The review of the New Zealand major banks' ratings is a direct consequence of a similar review of their Australian parent banks' ratings. The ratings of the New Zealand major banks incorporate the potential for parental support, so a change in the ratings of their parents' could potentially affect their ratings also", says Marina Ip, an assistant vice president based in Moody's Sydney office.

"At the same time, the review will focus on the New Zealand major banks' structural sensitivity to wholesale funding market conditions. The New\ Zealand major banks have on average around 40% of their total funding base sourced from wholesale funding. This results in a low liquid asset coverage of their respective wholesale liabilities (which includes certificates of deposit and related party funding) measured as a percentage of total assets", adds Ip.

"Foreign currency wholesale funding comprises around two-thirds of the New Zealand banking system's wholesale funding profile. An increase in offshore
issuance was evident at the end of 2008, driven by the issuance of medium term notes that carried the New Zealand government guarantee. On a positive note, banks that took advantage of the government guarantee used the proceeds to reduce short-term debt, thereby improving their funding maturity profiles" explains Ip.

The review of the New Zealand major banks will be largely impacted by the review currently undertaken on their respective Australian parent banks, details of which are covered in a separate press release.

Moody's generally aims to conclude rating reviews within a 90 day period.