S and P upgrades PSIS to investment grade; banking licence application expected to follow

S and P upgrades PSIS to investment grade; banking licence application expected to follow

Standard & Poor's has upgraded its credit rating on PSIS to BBB- in a move that's likely to spark an application to the Reserve Bank for a banking licence from the cooperatively owned financial services provider.

S&P upgraded PSIS to the lowest of its investment grade ratings from BB+ and revised its outlook to stable from positive.

“The rating upgrade reflects PSIS’ strong membership support, which underpins a sound and reasonably resilient business profile as a retail-focused financial services provider in New Zealand that successfully withstood the recent difficult operating environment for financial services,” said S&P credit analyst Peter Sikora.

PSIS chief executive Girol Karacaoglu told interest.co.nz in December that he was hopeful S&P would lift its credit rating on PSIS to BBB- and sometime after that the cooperative "would very much hope to apply for a bank registration."

Read S&P's statement below:

Standard & Poor’s Ratings Services said today that it has raised its counterparty credit ratings on New Zealand-based PSIS Ltd. (PSIS) to ‘BBB-/A-3’ from ‘BB+/B’, and revised the outlook to stable, from positive.

“The rating upgrade reflects PSIS’ strong membership support, which underpins a sound and reasonably resilient business profile as a retail-focused financial services provider in New Zealand that successfully withstood the recent difficult operating environment for financial services,” said credit analyst Peter Sikora.

“We further believe that PSIS’ credit profile is supported by the company’s cooperative status, which forms the cornerstone of its customer focus and business success. Specifically, PSIS has maintained sound business growth through this period when new lending opportunities have been limited, without aggressively competing on price or relaxing its underwriting standards. More importantly, in our opinion the strong membership base has translated into a supportive and stable retail funding profile, and we expect this support to remain amid the ongoing difficult operating environment.”

Standard & Poor’s considers PSIS’ commitment to maintaining a relatively lower-risk credit risk profile as helping to offset limitations regarding the company’s moderate market position relative to larger nationally operating banks in New Zealand. PSIS’ lending activities, together with its conservative underwriting practices and good geographic diversity throughout New Zealand, have supported the company’s good asset-quality experience and adequate operating performance.

“The stable rating reflects an expectation that PSIS will maintain a low credit risk profile through a predominate focus on well secured residential mortgage lending”, said Mr. Sikora.

“The outlook also factors in an expectation that key elements of PSIS’ financial risk profile will remain supportive of the rating, including the company’s good asset-quality experience, its stable retail deposit funding base, adequate earnings and sound capital ratios under Standard & Poor’s risk adjusted capital framework.”

The rating could come under downward pressure if Standard & Poor’s were to observe an increase in the company’s risk appetite through: aggressive growth; a material weakening of underwriting standards; or expansion into higher risk activities. An early indicator of this could be a material increase in the level of nonperforming loans from recent and historical levels.

Downward rating pressure would also emerge from any unexpected loss that materially weakens capital from current supportive levels or any losses that undermine our overall view of PSIS’ risk-management capability. We believe upward rating prospects for PSIS are limited in the medium term, and that current ratings are reflective of the company’s natural rating given its business focus and financial risk profile.

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