Credit ratings agency drops Kiwibank's long term rating one step to A1 from Aa3 following the state controlled bank's ownership shuffle

State-controlled Kiwibank has seen its credit rating downgraded by ratings agency Moody’s in the wake of last year’s ownership reshuffle, but the ratings outlook for the bank is now given as stable.

The bank was previously wholly owned by Crown enterprise NZ Post, but recently New Zealand Super Fund 25% and ACC 22%, bought in.

When the ownership reshuffle was announced, meaning that a payment guarantee from NZ Post would be removed, Moody’s indicated it would drop the rating. And it has followed through.

It has downgraded Kiwibank Limited’s long-term issuer and deposit ratings to A1 from Aa3. Under Moody’s ratings definitions, obligations rated Aa are judged to be of “high quality and are subject to very low credit risk”, while those obligations rated A are judged to be “upper-medium grade and are subject to low credit risk”.

Moody’s has also downgraded the bank’s long-term Counterparty Risk Assessment to Aa3(cr) from Aa2(cr), and downgraded its Adjusted Baseline Credit Assessment to baa2 from aa3.

Kiwibank’s short-term issuer and deposit ratings were confirmed at P-1 while the short-term Counterparty Risk Assessment was also confirmed at P-1(cr).

Moody’s said the downgrade of Kiwibank’s rating was “a direct result” of the removal of the New Zealand Post guarantee, “which we believe has introduced some uncertainty about the potential for parental support”.

The agency pointed out, however that  Kiwibank will continue to benefit from a very high likelihood of government support, given that it will remain indirectly owned by the government.

“Kiwibank’s position as the key domestic player in the New Zealand banking system and its position as a government-owned bank also support Moody’s view that there is a very high probability that it will receive government support — via its government-owned shareholders — in case of need,” Moody’s said.

“The New Zealand government has also provided a NZ$300 million uncalled capital facility to Kiwibank’s owners, for the express purpose of supporting the bank in case of need. The facility will remain in place for 10 years, after which the government will review whether it is still required. The government must provide five years of advance notice before terminating the facility.”

Kiwibank recently reported an 11%* reduction in half-year net after-tax profit to $63 million, citing funding pressures, continued investment in the bank’s infrastructure, and to a lesser extent the Kaikoura earthquake as reasons for the fall.

How credit ratings relate between the various authorised raters is set out here.