Kiwibank AA rating affirmed but credit ratings agency sees capital ratios staying low relative to domestic and some international peers over the next 2 years

Credit ratings agency Fitch has affirmed Kiwibank's credit rating at AA with a stable outlook. Here's Fitch's full statement.

Fitch Affirms Kiwibank at 'AA-'; Outlook Stable

Fitch Ratings has affirmed Kiwibank Limited's (Kiwibank) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'AA-' and 'AA' respectively. The Outlook is Stable. A full list of rating actions is at the end of this commentary. 



Kiwibank's IDRs, senior debt and Support Rating reflect Fitch's view that there is an extremely high capacity and likelihood of support from the bank's ultimate owner, the New Zealand sovereign (Long-Term Foreign-Currency IDR: AA/Stable) if required. The bank is directly owned by New Zealand Post (NZ Post), New Zealand Superannuation Fund (NZ Super) and Accident Compensation Corporation (ACC), which are all sovereign-owned entities. The Stable Outlook reflects the Outlook of the sovereign rating.

The one-notch difference between the sovereign rating and the bank reflects the removal of the guarantee provided by NZ Post in favour of the bank's liabilities at the end of February 2017 as part of introduction of NZ Super and the ACC as new shareholders. Fitch views this as a reduction in the legal commitment to support the bank.

Kiwibank's existing guaranteed senior debt ratings were unaffected by the removal of the guarantee and remain aligned with the sovereign rating, as the guarantee covers existing liabilities, including deposits until their final maturity. 

The ratings of new senior debt issuances without the benefit of the guarantee will likely be aligned with the relevant IDRs. 


Kiwibank's Viability Rating reflects its lower levels of capitalisation relative to domestic peers and its moderate franchise. These rating considerations are partly offset by its robust asset quality, controlled risk appetite and funding profile.

Fitch expects the bank's capitalisation to gradually improve, supported by steady internal capital generation, moderate growth and the willingness of NZ Super and the ACC to reinvest dividends into the bank. However, the bank's capital ratios are likely to remain low relative to domestic and some international peers over the next two years. Kiwibank maintains adequate buffers over regulatory minimums, and while its buffers are smaller than those of peers, its access to capital through its shareholders is considered stronger.

Kiwibank operates a moderate franchise. It is considerably larger than its domestic regional bank peers, but its total market share is small at around 4% of total lending, meaning it has limited pricing power relative to the major banks. The bank appears to have entered a phase of less aggressive growth with greater focus on efficiency and profitability, and Fitch does not expect its franchise to significantly change over the next 24 months. 

Fitch believes asset quality is likely to remain broadly stable, although an increase in loan impairment ratios is possible given the existing low levels and potential turn in the credit cycle. The bank's asset quality has been supported by its conservative loan mix, which is skewed towards residential mortgages, and the favourable economic environment. 

The agency expects the bank's operating efficiency to improve over the medium term as a result of its technology investment. However, the bank's cost-to-income ratio is likely to remain elevated in the short term due to high investment costs and disruption caused by the Kaikoura earthquake.  



Kiwibank's IDRs, senior debt and Support Rating are sensitive to changes in the New Zealand sovereign's Long-Term Foreign- and Local-Currency IDRs, and ultimately, the shareholders' ability and propensity to provide timely support to the bank. 


- A weakening in the bank's capitalisation, earnings and profitability, possibly as a result of deterioration in the bank's risk appetite or asset quality, could place downward pressure on the Viability Rating. Positive rating action would require significant improvements in the bank's capitalisation or profitability, which does not appear likely in the next 12 months. 

The rating actions are as follows:  

Long-Term Foreign-Currency IDR affirmed at 'AA-'; Outlook Stable
Short-Term Foreign-Currency IDR affirmed at 'F1+'
Long-Term Local-Currency IDR affirmed 'AA'; Outlook Stable
Short-Term Local-Currency IDR affirmed at 'F1+'
Viability Rating affirmed at 'bbb'
Support Rating affirmed at '1'
Guaranteed foreign-currency senior debt affirmed at 'AA'
Guaranteed local-currency senior debt affirmed at 'AA+'
Commercial paper programme affirmed at 'F1+'

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