Kiwibank growth plans are risk to AA rating: Fitch

BUSINESSDESK: State-owned lender Kiwibank's plans to grab more of New Zealand's market are a potential risk to its newly assigned double-A ratings, says Fitch.

The rating agency issued an AA long-term, foreign currency issuer default rating with a stable outlook to the lender. The rating reflects Kiwibank’s parent NZ Post, the government-owned postal service.

Kiwibank’s credit rating could be threatened if the lender tries to grow too fast, Fitch said. It has about 5% of the local market and Treasury forecasts its loan book will expand to $18.58 billion by 2016 from its $12.1 billion as at December 31.

"Despite the economic challenges of the past four years, the bank's loan book has consistently grown ahead of the domestic banking system," Fitch said in its report.

"Fitch views this fast growth as a potential risk to the bank's future asset quality performance, profitability and capitalisation."

In February, Standard & Poor’s put Kiwibank’s AA- credit rating on negative outlook, in line with parent NZ Post, which is grappling with an on-going slide in demand for postal deliveries.

A negative outlook gives it a one-in-three chance of a downgrade over the next two years.

Kiwibank's loan growth has caused it to rely more heavily on wholesale funding markets, weakening its funding mix, Fitch said. It has sought to grow its deposit base to pay for future loan growth.

The lender also plans to issue covered bonds to extend its maturity profile.

Covered bonds are debt securities where the bondholder is an unsecured creditor of the issuing bank, but holds a secured interest in a separate "cover pool" of assets, such as its loan book.

Earlier this year, Kiwibank signalled a willingness to enter New Zealand's $30 billion-a-month foreign exchange market, putting out a tender to identify suitable service providers and investigate the market for FX pricing and risk management platforms.

That followed the bank's acquisition of wealth manager Gareth Morgan Investments, which had $1.5 billion under management and more than 57,000 customers at the time.

Kiwibank's listed preference shares, which pay annual interest of 8.15%, were unchanged at $103.75 per $100 face amount. The notes have appreciated 1.4% this year.