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Fitch Revises Outlook on New Zealand Association of Credit Unions to Negative; Affirms 'BB+'
December 6, 2017 / 2:22 AM / 13 days ago

Fitch Revises Outlook on New Zealand Association of Credit Unions to Negative; Affirms 'BB+'

(The following statement was released by the rating agency) SYDNEY, December 05 (Fitch) Fitch Ratings has revised the Outlook on New Zealand Association of Credit Unions (trading as Co-op Money NZ) to Negative from Stable and affirmed its Long- and Short-Term Issuer Default Ratings (IDR) at 'BB+' and 'B', respectively. The Negative Outlook is predicated on the risk that the association's franchise, business generation and profitability may weaken amid a smaller active membership base and higher operating costs. The affirmation of the IDRs reflects Fitch's view that the entity is likely to maintain stable performance over the next few years. KEY RATING DRIVERS Co-op Money NZ's rating is driven by its modest franchise and small customer base, which has shrunk over the previous year due to the withdrawal of business from two members, one of which was the largest. The association also has a less diverse and more specialised business model than industry peers. Co-op Money NZ's ratings also capture the size and strength of its members. The combined market share of the association's members is low relative to the financial system. The association is primarily a trade organisation and service provider to its members. Its core offerings include sector support, central banking and payment-clearing services. The association also provides services to institutions outside of its member base at market pricing. This segment is likely to be the main source of Co-op Money NZ's growth, due to the gradually declining number of credit unions in New Zealand. Profitability in the financial year ending June 2017 (FY17) was affected by the withdrawal of the association's largest member and the subsequent court proceedings on whether the association is allowed to sell services to associated members or third parties. The case was completed in November 2017 and was found in Co-op Money NZ's favour, but it was a costly distraction and highlighted the sensitivities of the association and potential need to separate non-member activities. Fitch expects profitability to remain flat over the next few years, despite potential revenue growth from external business, due to high level of ongoing investment, legal and restructuring costs. The provision of central banking and investment services accounted for the majority of Co-op Money NZ's balance-sheet assets as at FYE17. The association's services are provided for members' benefit and are not operated for profit maximisation. The small number of members and customers means deposit concentration is high. Co-op Money NZ's liquid-asset holdings are concentrated, mainly to the country's major banks, although the short duration of the holdings and liquidity policies in place mitigate some of the concentration risk. Co-op Money NZ's capitalisation is adequate for its size and operations. The association does not hold any debt, but this is reflective of its business model as a member-owned service provider. Fitch believes the association's capital is more susceptible to shocks than industry peers due to its higher concentration risk, small absolute capital base and limited access to new capital. RATING SENSITIVITIES Co-op Money NZ's ratings could be downgraded if membership disunity continues and resulted in a decline in the association's relevance for a sustained period. Failure to meet strategic goals amid slower-than-anticipated growth of its non-member businesses could also lead to a downgrade. The Outlook would be revised to Stable if the association were able to demonstrate an ability to maintain its performance and restore momentum in its external business growth. The ratings are also sensitive to changes in New Zealand's non-bank financial institutions sector. CRITERIA VARIATION: Fitch rates Co-op Money NZ under its Global Non-Bank Financial Institutions Rating Criteria (NBFI criteria), reflecting its treasury operations and business-to-business transactional service offerings. Fitch has varied its NBFI criteria by: - applying elements of both investment managers and financial market infrastructure subsectors within the NBFI criteria, as Co-op Money NZ operates in both segments; and - performing a qualitative rather than quantitative assessment of the association's financial profile, as the core ratios in the NBFI criteria cannot be meaningfully calculated. This is because the issuer, which operates as a mutually owned support organisation, does not have any debt or measured client fund flow and does not charge investment fees like a traditional investment manager, which are required inputs into Fitch's core ratios. Contact: Primary Analyst Jack Do Director +61 2 8256 0355 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Tim Roche Senior Director +61 2 8256 0310 Committee Chairperson Sabine Bauer Senior Director +852 2263 9966 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here 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 PUBLIC 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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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