Kiwibank Ltd. ‘A/A-1’ ratings affirmed; outlook positive

MELBOURNE: S&P Global Ratings has affirmed its ‘A’ long-term and ‘A-1’ short-term issuer credit ratings on Kiwibank Ltd.

The outlook on the long-term rating is positive, reflects the view that the bank’s risk appetite is now converging with that of its peers. “It also reflects our expectation that following recent management changes, a clear and solid strategy–including around its technology platform upgrade–could emerge in the next two years, which would likely reduce the risks the bank faces,” S&P press release said.

As a New Zealand government-related entity (GRE), our rating on Kiwibank benefits from three notches of extraordinary support from its stand-alone credit profile (SACP) of ‘bbb’. This is because S&P considers that Kiwibank plays an important role to the New Zealand government and that the bank has a very strong link to the government because of its indirect ownership.

“In our view, the creditworthiness of Kiwibank remains significantly insulated from its largest shareholder, New Zealand Post Ltd. (NZ Post; A+/Watch Neg/A-1) because we expect the regulator, the Reserve Bank of New Zealand, to protect the credit quality of Kiwibank by preventing NZ Post unfettered access to the cash flows and capital of Kiwibank. Consequently, we may assign Kiwibank a rating of up to three notches above our view of the credit profile of the NZ Post group”.

S&P assessment of Kiwibank’s SACP takes into account the bank’s solid franchise strength as New Zealand’s largest locally owned commercial bank (fifth overall). “We expect the Kiwi Group Holdings Ltd. group to maintain its risk-adjusted capital (RAC) ratio above 10% over the next two years. Furthermore, we expect credit losses to remain very low given Kiwbank’s predominantly low-risk mortgage loan book, set against a solid macroeconomic backdrop in New Zealand”.

“We expect to raise our long-term ratings on Kiwibank over the next two years if we form a view that the bank is likely to maintain a risk appetite largely in line with the broader banking system in New Zealand, and a clear and solid strategy has emerged, particularly around its information technology platform.

“Although unlikely in the next two years in our opinion, any strengthening of Kiwibank’s role and link as a GRE could also result in a higher rating.

“We would expect to revise the outlook to stable over the next two years should we form a view that Kiwibank’s strategy is not progressing in a direction supportive of its credit profile, or if we considered that other significant risks have emerged within the bank’s business or financial profile or the overall operating environment.

“Furthermore, any weakening in our view of Kiwibank’s role and link as a GRE could result in a lower rating”.

Edited by Nayyar Iqbal

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