Moody's cuts New Zealand banks' ratings by one notch

Credit rating company Moody's Investors Service has cut the ratings of the four major New Zealand banks by a notch, citing the state of the economy.

The ratings of ANZ National Bank, BNZ, ASB and Westpac have been cut to Aa3 from Aa2.

"The strong message here is that, as a nation, New Zealanders need to save more and be less reliant on overseas borrowing," BNZ Treasurer Tim Main said.

The cut comes after a review of bank ratings by Moody's and after the ratings of the Australian parent banks were cut a notch on May 18. The outlook of the ratings is now stable.

A challenging economic environment in New Zealand was one of the reasons the rating company gave for cutting the New Zealand banks' ratings.

"The local economy remains subdued, with gross domestic product growth now forecast to show stronger growth in the year to March 2013, a year later than forecast last year," said Marina Ip, an analyst in Moody's Sydney office.

ANZ National maintained a concentration in rural lending and Westpac had a concentration in commercial property, two sectors which were experiencing stress.

Moody's also noted the impact of recent natural disasters in parts of the country, including the Christchurch earthquakes.

The major banks source about 40 percent of their total funding from wholesale funding, with around two-thirds of this being sourced offshore.

"Over the past six months, the major banks have enjoyed relief in funding pressure due to slower loan growth and higher customer deposit growth," Moody's said.

But Moody's expressed doubt that the trends would continue.

Mr Main said the one notch reduction in BNZ’s long-term rating was expected given the structural reliance of both Australian and New Zealand banks’ had on overseas wholesale funding, and given the changes to overseas capital markets since the global financial crisis.

"Access to offshore funding will be more challenging, and the cost of funding will increase, and this is a global trend that all banks have had to adjust to. The rating announcement however will not materially impact our access to wholesale funding given our continued very strong capacity to meet our financial commitments."