Fitch Ratings says rapid growth amongst some regional lenders has put them under pressure
Fitch Ratings' August rating actions on seven New Zealand regional lenders reflect the agency’s expectation that they’re likely to continue their solid performance, although rapid growth at some of the lenders have put pressure on a number of their financial metrics.
The seven regional lenders in the report are TSB Bank, the Co-operative Bank, Southland Building Society, Nelson Building Society, Wairarapa Building Society and Credit Union Baywide.
However, several of the regionals’ loan books have expanded rapidly, putting some of their financial metrics under pressure. As a result, Fitch has reviewed the scores and outlooks for capitalisation and funding and liquidity for some of the regionals.
According to Fitch, the macro-economic risks in New Zealand remain elevated. In Auckland, strong house price growth has increased risk levels in the system. New Zealand household indebtedness remains at historically high levels, and the households' ability to service their loans is susceptible to increases in interest rates and unemployment – this could ultimately affect the regionals' asset quality and performance.
The report said residential mortgages remained the main form of exposure for these institutions, and reliance on volatile businesses is low. However, some of the regionals have increased or are seeking to expand their non-mortgage retail exposures, although these are likely to remain a small portion of their overall exposures.
Fitch said it expects the regionals' market and pricing power to remain low despite the segment's overall expansion. The New Zealand banking sector will continue to be dominated by the four major banks, with a combined market share of more than 85% of system assets by the end of the year.
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The seven regional lenders in the report are TSB Bank, the Co-operative Bank, Southland Building Society, Nelson Building Society, Wairarapa Building Society and Credit Union Baywide.
Fitch affirmed the long-term issuer default ratings and viability ratings of the seven New Zealand regional lenders. All of them have stable outlooks, reflecting Fitch’s expectation that the regionals are likely to continue their solid performance.
However, several of the regionals’ loan books have expanded rapidly, putting some of their financial metrics under pressure. As a result, Fitch has reviewed the scores and outlooks for capitalisation and funding and liquidity for some of the regionals.
According to Fitch, the macro-economic risks in New Zealand remain elevated. In Auckland, strong house price growth has increased risk levels in the system. New Zealand household indebtedness remains at historically high levels, and the households' ability to service their loans is susceptible to increases in interest rates and unemployment – this could ultimately affect the regionals' asset quality and performance.
The report said residential mortgages remained the main form of exposure for these institutions, and reliance on volatile businesses is low. However, some of the regionals have increased or are seeking to expand their non-mortgage retail exposures, although these are likely to remain a small portion of their overall exposures.
Fitch said it expects the regionals' market and pricing power to remain low despite the segment's overall expansion. The New Zealand banking sector will continue to be dominated by the four major banks, with a combined market share of more than 85% of system assets by the end of the year.
Related stories:
Asia Pacific’s non-banks set for growth
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