Our banks get upgrade

Credit rating agency Moody's has upgraded its industry outlook for New Zealand's banking system from negative to stable, saying asset quality concerns should ease following a return to economic growth and unemployment forecasts lower than previously thought.

Moody's also changed the Australian banking industry's outlook from negative to stable.

Here are Moody's comments on New Zealand's banking industry:

"The change in outlook to stable from negative for the New Zealand banking industry reflects the country's steady recovery from its mild recession between Jan 2008-March 2009. Improved economic factors such as two consecutive positive quarters of GDP growth and lower revised unemployment forecasts should ease asset quality concerns. Real GDP is expected to grow by 3 per cent in 2010.

The dramatic monetary policy action taken by the RBNZ during the crisis, cutting official interest rates from their recent high of 8.25 per cent (in June 2008) to its current 2.50 per cent, was designed to stimulate the economy. Encouragingly, the RBNZ recently announcing it may start to remove monetary stimulus around mid-2010, earlier than the previous timeframe of end-2010, should economic conditions continue to improve.

Whilst we feel non-performing loan (NPL) rates may have peaked, we will continue to closely monitor these levels in coming months, as some exposures may become delinquent over time. Borrower concentrations still exist, particularly in the property sector, where development has slowed and final completion or settlement has been delayed due to factors such as a fall in market value. However, the recovery in 2010 dairy prices will ease farm cash flow pressures, leading to a greater portion of performing loans."

- INTEREST.CO.NZ