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Fitch keeps Kiwibank on negative watch

NZN 20/06/2016 Edwin Mitson

Fitch Ratings has kept state-owned Kiwibank on negative rating watch during its annual review of the lender's credit rating.

A negative rating watch means the credit agency is more likely to downgrade the bank's credit rating in the future, which would make it more expensive for Kiwibank to borrow. Fitch is concerned the restructuring of Kiwibank, which would see owner New Zealand Post sell a 45 per cent share to the New Zealand Superannuation Fund and the Accident Compensation Corp, will remove an NZ Post guarantee on the bank's liabilities.

Fitch put Kiwibank's AA+ local currency rating on negative watch in April.

In an e-mailed statement, Fitch said the bank benefits from the guarantee.

"If it is removed, it will leave Kiwibank's funding and liquidity more sensitive to market confidence although the bank has reasonable contingency funding plans".

The agency acknowledges that the New Zealand government is expected to demonstrate a high willingness to support the bank.

If the deal goes ahead, Fitch expects Kiwibank's credit rating to fall one notch.

Kiwibank is assessed as having "limited pricing power" compared to major banks in New Zealand, with a conservative risk appetite and robust asset quality.

However, Fitch expresses concern that the bank is expected to face increasing pressure on profits and sales in the short-term due to intense competition, high investment costs and rising funding costs.

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