September 1, 2017 / 12:45 AM / in 10 months

Fitch Assigns Christian Savings Limited 'B+' Rating; Outlook Positive

(The following statement was released by the rating agency) SYDNEY, August 31 (Fitch) Fitch Ratings has assigned Christian Savings Limited (CSL) a Long-Term Issuer Default Rating (IDR) of 'B+' with Positive Outlook. At the same time, Fitch also assigned the Short-Term IDR at 'B'. A full list of rating actions is at the end of this commentary. The assignment of CSL's ratings follows a reorganisation of the operating entity for the Christian Savings organisation. The organisation conducted its operations under Christian Savings Incorporated (CSI) prior to 1 September 2017, but from today will operate under CSL. Fitch does not consider the change to be material and has assigned CSL ratings that are the same as that for CSI. The rating drivers and sensitivities of CSL are broadly similar to that of CSI. KEY RATING DRIVERS IDRS AND VIABILITY RATING The Positive Outlook reflects continued improvements in CSL's risk appetite and Fitch's expectation that CSL will continue to strengthen risk controls and underwriting over the next 12 months. CSL has also strengthened its management structure and depth through the hiring of a CFO. Fitch believes CSL's overall appetite for risk remains weaker than that of other small New Zealand-based lenders, which are primarily residential mortgage lenders. Fitch does not consider CSL to be an aggressive lender, although its business model and underwriting standards could be viewed as being of higher risk than other New Zealand lenders. Its core service is providing loans to churches; a segment that traditional lenders tend to perceive as higher-risk. CSL's loan pricing and terms are comparable with residential mortgages, reflecting its charitable lender purpose. Low loan/value ratios across its portfolio mitigate some of its risk. CSL's capitalisation is weaker relative to other Fitch-rated small New Zealand-based lenders, leaving its capital base more susceptible to shocks that lead to impairments or losses. However, its capitalisation and access to capital is likely to improve under the new operating entity, which will allow the organisation to raise common equity. Strong loan growth will continue to dampen improvement in capitalisation. CSL's asset quality is likely to remain stable and characterised by low loan impairment and write-off levels, which reflect its underwriting and well-collateralised position. However, Fitch believes CSL's low impairment ratios do not fully reflect its credit and concentration risk as it has higher single-name concentration relative to domestic peers. CSL's lending activities are fully funded by a combination of church and household deposits. Household deposits account for about half of total deposits and Fitch expects reinvestment rates to remain high in 2017. CSL's loan/deposit ratio is stronger than its peers, although the gap is likely to reduce should strong loan growth continue. CSL does not have access to the Reserve Bank of New Zealand's repo facility. SUPPORT RATING AND SUPPORT RATING FLOOR CSL's Support Rating and Support Rating Floor are based on Fitch's view that while support from the New Zealand sovereign (AA/Stable) is possible, it cannot be relied upon. CSL is not captured under the Open Bank Resolution scheme, which allows for the imposition of losses on depositors and senior debt holders when a deposit-taking institution fails. However, Fitch believes the existence of such a framework indicates a lower propensity for the sovereign to support its banks. RATING SENSITIVITIES IDRs AND VIABILITY RATING An upgrade in CSL's IDRs and Viability Rating will be driven by further reductions in its risk appetite or meaningful increase in capitalisation. Fitch expects positive trends in loan and asset growth, which should broaden CSL's customer base and exposure type, to lower it concentration risk over the next 12 months. The Positive Outlook on the rating could be revised to Stable if CSL's growth slows or if growth is achieved via stronger risk appetite or weaker underwriting standards. 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 Christian Savings Limited are as follows: Long-Term Foreign-Currency IDR assigned at 'B+'; Outlook Positive Short-Term Foreign-Currency IDR assigned at 'B' Long-Term Local-Currency IDR assigned at 'B+'; Outlook Positive Short-Term Local-Currency IDR assigned at 'B' Viability Rating assigned at 'b+' Support Rating assigned at '5' Support Rating Floor assigned at 'NF' Contact: Primary Analyst Jack Do Director +61 2 8256 0355 Fitch Australia Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Tim Roche Senior Director +61 2 8256 0310 Committee Chairperson Heakyu Chang Senior Director +822 3278 8363 Date of the Relevant Rating Committee: 11 August 2017 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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