New Zealand banking system outlook upgraded to stable from negative, Moody's says (Update 1)

Credit rating agency Moody's has upgraded its industry outlook for New Zealand's banking system to stable from negative, saying asset quality concerns should ease following a return to economic growth and unemployment forecasts lower than previously thought. (Update 1 adds Moody's report.) Moody's also changed the Australian banking industry's outlook from negative to stable. Here are Moody's comments on New Zealand's banking industry. Outlooks for industries represent Moody's view on the likely future direction of credit conditions in those industries. They do not represent Moody's projections of rating upgrades versus downgrades

The change in outlook to stable from negative for the New Zealand banking industry reflects the country's steady recovery from its mild recession between Jan 2008-March 2009. Improved economic factors such as two consecutive positive quarters of GDP growth and lower revised unemployment forecasts should ease asset quality concerns. Real GDP is expected to grow by 3% in 2010. The dramatic monetary policy action taken by the RBNZ during the crisis, cutting official interest rates from their recent high of 8.25% (in June 2008) to its current 2.50%, was designed to stimulate the economy. Encouragingly, the RBNZ recently announcing it may start to remove monetary stimulus around mid-2010, earlier than the previous timeframe of end-2010, should economic conditions continue to improve. Whilst we feel non-performing loan (NPL) rates may have peaked, we will continue to closely monitor these levels in coming months, as some exposures may become delinquent over time. Borrower concentrations still exist, particularly in the property sector, where development has slowed and final completion or settlement has been delayed due to factors such as a fall in market value. However, the recovery in 2010 dairy prices will ease farm cash flow pressures, leading to a greater portion of performing loans. The major banks still have significant funding wholesale requirements, at around 40% of total funding. With the New Zealand government guarantee for wholesale funding still in place, the New Zealand banks have continued to utilize both the government guaranteed and non-government guaranteed markets. The four majors are also well under way to meet new RBNZ liquidity policy requirements, scheduled to be in place by April 2010.

Moody's has changed the industry outlooks of the following banking systems from negative to stable: Australia, China, Hong Kong, Indonesia, India, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand. The industry outlooks of the banking systems in Cambodia, Japan, Mongolia and Vietnam remain negative. On Australia , We have changed the Australian banking system outlook to stable as industry conditions are stabilising on the back of an economic outlook that is far more favorable than predicted only six months ago. Strong demand for commodities from China and an effective government stimulus programme have been important drivers of this outcome. Australia avoided recession in 2009 and the consensus GDP growth outlook for 2010 is in the order of 2.5% to 3.0%. Unemployment is still well contained - at 5.7% in November 2009 - and looks like it has peaked well below the 8.5% originally forecast by the government in mid 2009. Recent bank disclosures suggest that credit costs are flattening off. Corporate sector leverage is generally low. The commercial real estate sector has successfully raised equity during the crisis and supply/demand conditions remain generally acceptable. While consumer leverage remains high, it has reduced over the crisis period. Housing conditions have remained strong as the supply shortage worsens on continued net migration and limited housing starts. There has been a gain in house prices over the crisis period. As to New Zealand, The change in outlook to stable from negative for the New Zealand banking industry reflects the country's steady recovery from its mild recession between Jan 2008-March 2009. Improved economic factors such as two consecutive positive quarters of GDP growth and lower revised unemployment forecasts should ease asset quality concerns. Real GDP is expected to grow by 3% in 2010.