Pyne Gould Corporation subsidiary Marac Finance has received some good news from Standard&Poor's, which revised its outlook on Marac's ratings to stable from negative.
S&P said at the same time it affirmed its BB+/B issuer credit ratings on the finance company.
The rating recognised Marac's stabilised asset quality position, which had previously come under pressure from the challenging domestic operating environment, S&P credit analyst Derryl D'silva said.
"The affirmation also reflects Marac's adequate liquidity position and its supportive capitalisation, which has benefited from a capital injection and the sale and transfer of impaired commercial property loans to a related company.
"Also supporting our rating is Marac's good market position in the New Zealand finance industry."
S&P said the stable outlook reflected its view that Marac would maintain a financial profile that supports the BB+ rating.
It expected that still-high arrears would continue to trend down and new loan loss provisions would be lower than recently experienced and would not constrain Marac's future profitability or compromise its capital adequacy position.
It expected Marac would maintain an adequate liquidity position by retaining the support and confidence of its bankers, and that it would continue to increase the proportion of non-guaranteed debentures to manage its funding position after the extended government guarantee expired in December 2011, S&P said.
The ratings agency did not expect to raise the ratings in the short term under the current business model.
"The most likely scenario for an upgrade would be amalgamation plans that delivered a larger, more-diversified, combined entity with a more supportive overall business and financial profile."
Pyne Gould managing director Jeff Greenslade said the rating outlook improvement was an acknowledgement by S&P of the substantial progress made within Marac's business in the past 12 months.
It reflected improving asset quality, strong liquidity, a robust balance sheet and capital base, and Marac's good market position.
The improved rating outlook added further momentum to the 'Heartland' banking concept being developed with Canterbury Building Society and Southern Cross Building Society.