Agency says bank ratings unaffected

A second credit rating agency has said that potential tax payments worth hundreds of millions of dollars would be unlikely to pressure New Zealand banks' ratings.

Last week, BNZ lost a court case over structured finance transactions in which $654 million of tax and interest is disputed, but it said it was likely to appeal. Penalties could also result.

Other banks facing court action are ANZ, with $562 million in dispute; Commonwealth Bank of Australia, which owns ASB, with $280 million in dispute; and Westpac, with $903 million in dispute, according to a report by UBS analysts.

Moody's said yesterday that paying the disputed tax assessments, dating to the late 1990s and early 2000s, should have minimal impact on the four banks' credit ratings, or on their Australian parents' ratings.

"We do not expect these tax assessments alone to impact the ratings of the New Zealand banks, because the potential tax assessments and penalties, while material, are not expected to exceed 60 per cent of a year's pre-tax earnings in the worst case," said Moody's Sydney-based assistant vice-president Marina Ip.

BNZ's pre-tax profit for the six months to March 31 was $669 million, with impairment losses of $99 million.

"And whilst earnings growth will likely be impacted, the banks will remain profitable entities," she said.

The banks had not disclosed the amount of provisioning to be set aside for the tax assessment cases.

On Friday, Standard and Poor's said that repaying disputed tax would not pressure ratings.

- NZPA