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Fitch: Regional NZ-owned banks - Sticking to the basics
October 23, 2013 / 8:04 PM / 4 years ago

Fitch: Regional NZ-owned banks - Sticking to the basics

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Regional New Zealand Financial Institutions: Sticking to the Basics here SYDNEY, October 23 (Fitch) Fitch Ratings says that smaller New Zealand-owned regional banks (Regionals) face an increasingly competitive market dominated by four major Australian-owned banks. However, they benefit from simple business models, and their franchises gain significant value through local ownership, which includes loyal, and at times, parochial community support. The Regionals' strengths lie in their plain vanilla business models which focus on accepting deposits from households and businesses, lending to fund residential mortgages, business loans and personal loans while typically avoiding riskier and more complex financial products. Since the global financial crisis, the Regionals have experienced strong deposit flows, healthy lending growth and achieved adequate profitability. However, credit exposure concentration, their small absolute size, and limited access to fresh capital are the main barriers to potentially higher ratings. Fitch expects competition for good quality assets to remain intense and this will continue to place pressure on the Regionals' net interest margin, although the recent reduction in funding costs may provide a partial offset. As a result, the agency believes maintaining good asset quality and continuing to improve their - in most cases - moderate cost management is key to achieving profit growth and internal capital generation. Conservative underwriting standards, combined with the local knowledge of customers and industries, have proven supportive of the Regionals' asset quality. The expansion by some of the Regionals into new markets and products, and partly through different distribution channels, has created new risk exposures. However, proven track records demonstrate a typically conservative underwriting approach. Strong funding profiles benefit from solid community support, and as a result, the Regionals' loan books are mostly fully deposit funded. Liquidity has improved since 2008, limiting most Regionals' reliance on wholesale funding markets and off-balance sheet facilities. For further details, see the report entitled " Regional New Zealand Financial Institutions: Sticking to the Basics" on, or by clicking on the above link. The report includes references to Kiwibank Limited (AA/Stable), Southland Building Society (BBB/Stable), Nelson Building Society (BB+/Stable), and Wairarapa Building Society (BB+/Stable), as well as three non-rated institutions: TSB Bank Limited, Co-operative Bank and Heartland Bank Limited. Contact: Andrea Jaehne Director +61 2 8256 0343 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 John Birch Director +61 2 8256 0345 Tim Roche Senior Director +61 2 8256 0310 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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