Fitch upgrades Cooperative Bank credit rating on expectations of future profits

Fitch said the bank currently generates weaker profits than its peers.

Fitch Ratings has upgraded the Cooperative Bank's credit rating to BBB from BBB- on the basis that it expects a turnaround in earnings and profitability over the next 12 to 18 months.

In a statement, Fitch said the bank currently generates weaker profits than its peers, but the upgrade reflects its view that the bank will be able to execute on its strategic objectives. Analysts noted a rising exposure to interest-only and investor mortgages, although current levels are low and consistent with its rivals.

The outlook for the BBB rating on Southland Building Society or SBS was dropped to stable from positive due to the bank's growth strategy.

"The increasing macroeconomic risks in New Zealand may result in higher risks for the bank than the agency anticipated in 2015," Fitch said.

The rating agency also warned that SBS's strong growth has put pressure on its funding profile, a term that refers to how the bank raises the money it needs to lend to borrowers.

In Fitch's broader commentary on New Zealand, it warned household debt levels continue to rise and are high relative to other developed economies, although the broader economic environment is likely to remain stable. Weak dairy prices are likely to act as a brake on the economy, offset by growth in tourism and construction in New Zealand's biggest city, Auckland, it said.


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