NZ banks face challenges - Moody's

The New Zealand banking system is sound but its outlook continues to be negative, Moody's Investors Service said.

The credit rating company was commenting on the release of its report entitled Banking System Outlook: New Zealand.

Moody's rates ANZ National Bank, ASB Bank, Bank of New Zealand and Westpac New Zealand Aa2 with a stable outlook.

The outlook for New Zealand banking system continued to be negative, reflecting the impact of weaker local and global economies on asset quality. This was in line with most banking systems globally.

"Impairment levels have risen noticeably so far in fiscal 2009 - albeit off a low base - thereby reducing net profit growth and internal capital generation capabilities," said Marina Ip, an assistant vice president at Moody's Sydney office.

Unemployment was expected to rise to 7.5 per cent, which would likely add to mortgage borrower stress, Ip said.

Soft commodity prices would also impact exports, and much lower dairy prices for 2009-10 - compared to the past two years - would hurt dairy farmers, resulting in potential cashflow problems.

"With agriculture lending comprising 15 per cent of the system's gross loans, the potential impact to bank's delinquency rates will not be insignificant".

Loan growth had been flat so far this year.

"But, despite the challenges it faces, the banking system remains sound and the Reserve Bank of New Zealand (RBNZ) has been pro-active in reinforcing financial stability in the system," Ip said.

- NZPA