S&P affirms Kiwibank and NZ Post ratings, but warns of future pressure as bank grows

Standard & Poor's said on Tuesday it had affirmed its AA minus long term and A-1 plus short term ratings on NZ Post and its subsidiary Kiwibank, but has warned the solid rating is based on Kiwibank's growth being "measured" and that eventually its growth would put their ratings under pressure. "The ratings on NZ Post are underpinned by the current strength of the company's market position, its supportive relationship with the government, and solid cash performance," said Standard & Poor's credit analyst Anna Hughes, of the Sovereign & International Public Finance Ratings group. "The stable outlook incorporates these strengths and our expectation that the group will continue to maintain its measured approach to growing and expanding the business." S&P said the biggest risk to the ratings on NZ Post remained the impact of its ownership and guarantee of Kiwibank. When NZ Post established Kiwibank in 2001, the ratings assigned to Kiwibank reflected the risks associated with a start-up bank. "The bank has since mitigated the start-up risks, and its underlying credit quality has improved," the agency said. "Kiwibank benefits from having a good management team, a good retail-funding position, and satisfactory capitalization," it said. "However, its credit quality remains weaker than NZ Post's traditional business because the bank has a modest market position, modest profitability, and potential for further deterioration in asset quality. It is, therefore, a negative factor for NZ Post that Kiwibank now contributes 43% of the group's net income, which is forecast to exceed 50% by 2011." "Given that Kiwibank is a significant and growing contingent liability for NZ Post, there is minimal upside potential to the ratings on NZ Post, and there is likely to be pressure on the ratings in the future as the bank continues to grow." Kiwibank's assets grew 50% last year to NZ$9.43 billion.