Credit rating agency Moody's has revised the outlook on its Aa3 ratings on New Zealand's big four banks - ANZ NZ, ASB, BNZ and Westpac NZ - to negative from stable in line with moves made to their Australian parents' ratings.
Earlier, Moody's affirmed its Aa2 ratings on the Australian parents of NZ's big four banks, but revised their rating outlooks to negative from stable.
"The outlook change for Australia's four major banks reflects Moody's expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond, which could lead to a deterioration in their profit growth and asset quality, as well as an increase in their sensitivity to external shocks," Moody's said.
"In particular, the rating action reflects (a) Australia's ongoing economic transition which, despite stable aggregate economic growth, has resulted in low nominal income and wage outcomes and persistently low interest rates, exerting in turn downward pressure on the banks' profit growth; (b) Moody's continued concerns regarding the banks' exposure to tail-risks in the Australian housing market, which has been characterised over the recent past by strong price appreciation and rising household debt; and (c) rising bad debt within parts of the banks' lending portfolios, in part reflecting these pressures."
Moody's has also lowered its outlook for the Australian banking system, rated Aaa, to negative from stable.
Here's Moody's statement on the NZ banks
Moody's Investors Service has today revised to negative from stable the outlooks on the ratings of the four major New Zealand banks.
The banks affected are ANZ Bank New Zealand Limited, ASB Bank Limited, Bank of New Zealand and Westpac New Zealand Limited.
At the same time, Moody's has affirmed the four banks' Aa3 long-term senior unsecured debt ratings, together with all their other ratings, at their existing levels.
The outlook change follows Moody's decision to revise to negative from stable the outlooks of their respective Australian parents, Australia and New Zealand Banking Group Limited (Aa2 negative, a1), Commonwealth Bank of Australia (Aa2 negative, a1), National Australia Bank Limited (Aa2 negative, a1) and Westpac Banking Corporation (Aa2 negative, a1), as announced on 18 August 2016.
For more information on the rating actions on the Australian parent banks, please visit their respective issuer pages on www.moodys.com.
Outlooks, which provide an opinion on likely rating direction over the medium term, are assigned only to banks' long-term deposit, issuer and senior unsecured debt ratings.
A list of all affected ratings is provided at the end of this press release.
The change in the four banks' rating outlooks to negative from stable follows the same change in the rating outlooks to negative for their respective parents.
Moody's incorporates two notches of affiliate support uplift into the Aa3 long-term ratings of the four banks, given Moody's assessment of a very high likelihood of support from their Australian parents.
The affirmation of the ratings reflects the strong financial profiles of the four banks. Bank asset quality is currently very strong, profitability has improved, and capital remains robust.
These favorable characteristics provide the banks with a strong buffer to withstand the stress arising from a potentially more challenging operating environment during 2016-17.
Moody's expects credit conditions for the banks to weaken as credit growth and household leverage continue to rise, increasing sensitivity to shocks, and against a backdrop of weaker economic growth and rising stress in the dairy sector.
WHAT COULD CHANGE THE RATING UP/DOWN
A downgrade of the Australian major banks' a1 baseline credit assessments would likely result in a downgrade of the long-term ratings of the four major New Zealand banks.
Conversely, the outlooks on the four banks are likely to return to stable if the outlooks on their respective Australian parents are revised to stable.
A material weakening in the financial fundamentals of the New Zealand banks would also be negative for the bank's ratings.
And here's a statement from ANZ NZ
ANZ Bank New Zealand Limited (ANB) today confirmed that Moody’s decision to revise Australia’s macro profile has resulted in a change in the outlook for the major Australian and New Zealand banks, including ANB, from stable to negative.
Moody’s reaffirmed ANB’s Aa3 long-term senior unsecured debt ratings moving from Aa3 (Outlook Stable) to Aa3 (Outlook Negative) saying it expected a potentially more challenging operating environment for the banks for the remainder of 2016 and beyond.
All other ratings remain at their existing levels.