Westpac NZ CEO George Frazis worried about possible bank credit rating downgrades after NZ sovereign ratings downgrades

By Gareth Vaughan

Westpac New Zealand CEO George Frazis says credit rating downgrades of the major New Zealand banks could follow the recent New Zealand sovereign ratings downgrades, but in his view wouldn't be justified.

Frazis told interest.co.nz the recent downgrades of New Zealand's sovereign credit rating to AA from AA+ by both Standard & Poor's (S&P) and Fitch Ratings meant the Reserve Bank, government and the banks themselves needed to closely monitor what happens to the bank ratings. This was especially the case with S&P, Frazis said, given it has the results of a review of the methodology it uses to rate banks due out by year's end.

It was a "possibility" the bank ratings could be downgraded, Frazis added. S&P rates all of the big four banks, Westpac, ANZ, ASB, and BNZ, AA. Westpac is also rated AA by Fitch, with ANZ AA- and BNZ and ASB unrated.

"I think the important thing is to make sure both the banks, the Reserve Bank of New Zealand and government, have a really close dialogue with S&P to make sure S&P understands what the fundamentals are in New Zealand," said Frazis.

"The issue with S&P is that they're changing the methodology so it's hard to tell (whether the current S&P ratings are still justified) not having seen what the new methodology is."

"You have to say the fact that they've downgraded sovereign debt is likely to have an impact on bank debt, but in my view there's no need for that to occur. We'll just have to wait and see," Frazis said.

Even though a downgrade could increase the cost of borrowing for Westpac, Frazis said the bank was well placed in terms of funding. Westpac raised NZ$1.7 billion in its first covered bond issue in June.

"We're ahead of our funding plan and on purpose because we could see that this was quite an uncertain period," Frazis said. "Now that's not to say that we won't be going to the (offshore wholesale) market, but there's no urgency over the next 12 months to enter the market. So we will be going to the market as required," Frazis said.

"We've got more funds than we need in terms of our lending growth so there's no constraint on that."

The third major international credit rating agency, Moody's Investors Service, downgraded ANZ, ASB, BNZ and Westpac by one notch to Aa3 earlier this year from Aa2.

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