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Moody's says NZ banks reliant on wholesale funding

Fuseworks Media
Fuseworks Media

Wellington, June 9 NZPA - Moody's Investors Service says New Zealand banks remain resilient, but rely more than other banks on wholesale funding.

The credit rating company held a presentation in Wellington today at which it cited strong support from highly rated Australian parent banks and New Zealand's sovereign credit rating as positive factors for the ratings of New Zealand banks.

It declined to comment on whether it expected other banks to follow BNZ in issuing covered bonds.

The covered bonds are secured on specific mortgages held by a bank. They are not allowed in Australia because they give investors a priority claim on mortgages. The BNZ issue was the first in this market.

Marina Ip, a financial institutions group analyst at Moody's, said the covered bonds were not a concern from an overall bank rating perspective as long as there was not a high level of issuance.

The covered bonds represented a diversification in the area of wholesale bank funding.

"It is a new investor base banks are able to tap. Covered bonds will allow banks to diversify within their wholesale funding," Ms Ip said.

The concerns about covered bonds included that they were a "cherry picking" of the best bank assets, they could lead to secured funding concentrations and were currently not eligible for Reserve Bank of New Zealand so called repo-facilities.

The high level of wholesale funding of New Zealand banks was a concern for Moody's generally.

Customer deposits comprised roughly 60 percent of total bank funding in New Zealand, according to Moody's presentation.

Moody's has rated New Zealand's four main banks Aa2.

Regulatory initiatives in New Zealand seem more likely to prevent downgrades than support upgrades, Moody's said.

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