S&P revises Marac Finance's BB+ rating outlook to stable from negative

Ratings agency Standard and Poor's has revised the outlook on Marac Finance's BB plus credit rating to stable from negative, saying its asset quality had stabilised and it had benefited from a capital injection and the removal of bad property loans to a related company (PGC).

Here is the full statement from S&P below.

“The rating affirmation recognizes MARAC’s stabilized asset quality position, which had previously come under pressure from the challenging domestic operating environment,” Standard & Poor’s credit analyst Derryl D’silva said.

“The affirmation also reflects MARAC’s adequate liquidity position and its supportive capitalization, 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.”

Moderating factors are: MARAC operates in higher-risk lending segments; its funding position could be vulnerable to unexpected weakening in its own credit profile or emerging industry pressures; and its earnings are likely to remain under some pressure from ongoing, albeit more-moderate, new loan loss provisioning.

The stable outlook reflects our view that MARAC will maintain a financial profile that supports the ‘BB+’ rating. We expect that still-high arrears will continue to trend down and new loan loss provisions will be lower than recently experienced and will not constrain MARAC’s future profitability or compromise its capital adequacy position.

We also expect MARAC will maintain an adequate liquidity position by retaining the support and confidence of its bankers, and that it will continue to increase the proportion of non-guaranteed debentures to manage its funding position after the extended government guarantee expires in December 2011.

The ratings could be lowered if there were an unexpected increase in provisions and nonperforming assets such that net profits were reduced by more than half. The ratings could also be lowered if any new operational risk events were to emerge that undermined our view of MARAC’s risk management framework.

The rating could come under pressure if there were a material deterioration in MARAC’s liquidity position or if MARAC was unsuccessful in attracting non-guaranteed debenture funding as it approached the expiry of the extended government guarantee on Dec. 31, 2011. We do 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.