Wellington, March 10 NZPA - Standard & Poor's has affirmed its AA credit rating on New Zealand Post and subsidiary Kiwibank, but warned that the banking operations remained a drag on NZ Post.

NZ Post is rated AA-/A-1+ with a stable outlook, and Kiwibank's identical rating reflected its ownership by NZ Post.

The biggest risk to NZ Post's ratings remained the impact of its ownership and guarantee of Kiwibank, S&P credit analyst Anna Hughes said.

"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," Ms Hughes said.

The stable outlook reflected that and also the expectation that NZ Post would maintain a measured approach to expansion.

Although eight-year-old Kiwibank had overcome the risks of starting up and improved its underlying credit quality, it had a modest market position, modest profitability, and potential for further deterioration in asset quality, she said.

Kiwibank had good management, a good retail-funding position, and satisfactory capitalisation, but it was still a negative factor for NZ Post that Kiwibank contributed 43 percent of group income, forecast to rise above 50 percent 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," Ms Hughes said.

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