March 9, 2016 / 3:46 AM / 2 years ago

Fitch Affirms Baptist Savings; Outlook Revised to Positive

(The following statement was released by the rating agency) SYDNEY, March 08 (Fitch) Fitch Ratings has affirmed New Zealand Baptist Savings & Development Society Inc's (NZBS) Long-Term Issuer Default Rating (IDR) at 'B+'. The Outlook has been revised to Positive. At the same time, Fitch has assigned NZBS a Viability Rating of 'b+', Support Rating (SR) of '5' and Support Rating Floor of 'No Floor'. KEY RATING DRIVERS IDRs AND VR The revised Positive Outlook reflects improvements in the NZBS's risk appetite, particularly around its risk controls since becoming a licensed deposit taker in 2015. NZBS has expanded its management team, introduced new risk limits and implemented a greater separation of duties during the underwriting process. Despite the improvement, Fitch still considers NZBS's overall risk appetite as weaker relative to other small New Zealand (NZ) based lenders which, along with its low levels of capitalisation, act as constraints on the ratings. The society's asset quality remains stable and its funding and liquidity profile is sound. Fitch considers the society not an aggressive lender although its underwriting standards could be viewed as more aggressive as it provides loans to churches, a segment which is traditionally perceived to be of higher risk by traditional lenders. In addition, pricing on these loans do not necessarily reflect the borrowers' risk as the terms are similar to residential mortgages. NZBS's risk appetite is reflective of its purpose as a charitable lender and is partly mitigated by the low loan/value ratios (LVR) across the portfolio. The society's capital is low in absolute terms and weak relative to other NZ based non-bank deposit taking (NBDT) institutions rated by Fitch, which leaves the capital base susceptible to any shocks that could lead to impairments or losses. The society currently has limited sources of new capital outside of internal capital generation which Fitch considers low due to its low profit motives. Fitch expects NZBS's asset quality to remain stable with low levels of loan impairments in FY16, reflecting the society's business model and work out procedures. Given its business model, Fitch believes the society is unlikely to take aggressive recovery action in difficult circumstances. The low impairment ratios are therefore not fully reflective of the credit and concentration risk. Its 10 largest borrowers accounted for 35% of total loans which is significantly higher than other non-bank deposit takers. NZBS's lending activities are fully funded by a combination of church and household deposits. Households account for about half of NZBS's. Fitch expects deposits reinvestment rates to remain high at around 90% in FY16. The society does not have access to the Reserve Bank of New Zealand's repo facility. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Ratings and Support Rating Floors of NZBS reflect that while support from the New Zealand sovereign is possible, it cannot be relied upon. NZBS is not captured under the Open Bank Resolution Scheme however Fitch views the existence of such a framework, which allows for the imposition of losses on depositors and senior debt holders when a deposit-taking institution has failed, as an indication of a reduced propensity for the sovereign to support its banks. RATING SENSITIVITIES IDRs AND VR An upgrade in NZBS's IDRs and VR will be driven by ongoing improvements in its risk appetite or meaningful increase in capitalisation. Fitch expects positive trends in loan and asset growth which should reduce concentration risk over the next 12-24 months. The Positive Outlook on the rating could be revised to Stable if the society loses momentum in the development of its risk framework and improved risk appetite. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of the New Zealand government to provide timely support. The rating actions for NZBS are as follows: Long-Term Foreign-Currency IDR affirmed at 'B+'; Outlook revised to Positive from Stable; Short-Term Foreign-Currency IDR affirmed at 'B'; Viability Rating assigned at 'b+'; Support Rating assigned at '5'; and Support Rating Floor assigned at 'NF'. Contacts: Primary Analyst Jack Do Associate Director +61 2 8256 0355 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Andrea Jaehne Director +61 2 8256 0343 Committee Chairperson Parson Singha Senior Director +66 2108 0151 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com. Fitch Affirms Baptist Savings; Outlook Revised to Positive Fitch Ratings has affirmed New Zealand Baptist Savings & Development Society Inc's (NZBS) Long-Term Issuer Default Rating (IDR) at 'B+'. The Outlook has been revised to Positive. At the same time, Fitch has assigned NZBS a Viability Rating of 'b+', Support Rating (SR) of '5' and Support Rating Floor of 'No Floor'. KEY RATING DRIVERS IDRs AND VR The revised Positive Outlook reflects improvements in the NZBS's risk appetite, particularly around its risk controls since becoming a licensed deposit taker in 2015. NZBS has expanded its management team, introduced new risk limits and implemented a greater separation of duties during the underwriting process. Despite the improvement, Fitch still considers NZBS's overall risk appetite as weaker relative to other small New Zealand (NZ) based lenders which, along with its low levels of capitalisation, act as constraints on the ratings. The society's asset quality remains stable and its funding and liquidity profile is sound. Fitch considers the society not an aggressive lender although its underwriting standards could be viewed as more aggressive as it provides loans to churches, a segment which is traditionally perceived to be of higher risk by traditional lenders. In addition, pricing on these loans do not necessarily reflect the borrowers' risk as the terms are similar to residential mortgages. NZBS's risk appetite is reflective of its purpose as a charitable lender and is partly mitigated by the low loan/value ratios (LVR) across the portfolio. The society's capital is low in absolute terms and weak relative to other NZ based non-bank deposit taking (NBDT) institutions rated by Fitch, which leaves the capital base susceptible to any shocks that could lead to impairments or losses. The society currently has limited sources of new capital outside of internal capital generation which Fitch considers low due to its low profit motives. Fitch expects NZBS's asset quality to remain stable with low levels of loan impairments in FY16, reflecting the society's business model and work out procedures. Given its business model, Fitch believes the society is unlikely to take aggressive recovery action in difficult circumstances. The low impairment ratios are therefore not fully reflective of the credit and concentration risk. Its 10 largest borrowers accounted for 35% of total loans which is significantly higher than other non-bank deposit takers. NZBS's lending activities are fully funded by a combination of church and household deposits. Households account for about half of NZBS's. Fitch expects deposits reinvestment rates to remain high at around 90% in FY16. The society does not have access to the Reserve Bank of New Zealand's repo facility. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Ratings and Support Rating Floors of NZBS reflect that while support from the New Zealand sovereign is possible, it cannot be relied upon. NZBS is not captured under the Open Bank Resolution Scheme however Fitch views the existence of such a framework, which allows for the imposition of losses on depositors and senior debt holders when a deposit-taking institution has failed, as an indication of a reduced propensity for the sovereign to support its banks. RATING SENSITIVITIES IDRs AND VR An upgrade in NZBS's IDRs and VR will be driven by ongoing improvements in its risk appetite or meaningful increase in capitalisation. Fitch expects positive trends in loan and asset growth which should reduce concentration risk over the next 12-24 months. The Positive Outlook on the rating could be revised to Stable if the society loses momentum in the development of its risk framework and improved risk appetite. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of the New Zealand government to provide timely support. The rating actions for NZBS are as follows: Long-Term Foreign-Currency IDR affirmed at 'B+'; Outlook revised to Positive from Stable; Short-Term Foreign-Currency IDR affirmed at 'B'; Viability Rating assigned at 'b+'; Support Rating assigned at '5'; and Support Rating Floor assigned at 'NF'. Contacts: Primary Analyst Jack Do Associate Director +61 2 8256 0355 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Andrea Jaehne Director +61 2 8256 0343 Committee Chairperson Parson Singha Senior Director +66 2108 0151 Applicable criteria, 'Global Bank Rating Criteria', dated 20 March 2015, is available at www.fitchratings.com. Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0326, Email: leni.vu@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 20 Mar 2015) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1000632 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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