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Fitch Publishes First-Time Rating of 'BB' to Credit Union Baywide
October 17, 2016 / 4:06 AM / a year ago

Fitch Publishes First-Time Rating of 'BB' to Credit Union Baywide

(The following statement was released by the rating agency) SYDNEY, October 17 (Fitch) Fitch Ratings has published Credit Union Baywide's (CUB) Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable Outlook and Viability Rating at 'bb'. A full list of rating action is at the end of this commentary. KEY RATING DRIVERS IDRS AND VIABILITY RATING CUB's IDR and Viability Rating reflect its higher risk appetite than most of its domestic peers, with a focus on higher loan/value mortgages and consumer lending. Fitch believes this may increase the susceptibility of its loan performance to a weaker operating environment through the cycle. CUB's risk controls are adequate for its size and consistent with regional peers, but are not as developed as the larger banks. CUB's asset quality has improved in the last few years, supported by a favourable operating environment and a reweighting of its portfolio towards residential mortgages. However, residential mortgage growth has largely been driven by higher loan/value ratio lending during a time of increasing macro risks. This could leave its mortgage book susceptible to losses in a downturn, but we believe the exposures should still outperform consumer lending. CUB has a modest earnings and profitability profile. The credit union maintains strong net-interest margins relative to peers, reflecting its higher margin business mix, but its overall profitability is modest due to a high cost base relative to its risk profile. CUB's risk-weighted and unrisk-weighted capitalisation ratio is robust and above most of its domestic peers, but the credit union's absolute capital base is small and it has limited ability to generate fresh common equity outside of internal capital generation. CUB's funding profile remains stable and its liquidity position is sound. Its lending activities are wholly funded by retail deposits, which Fitch expects will continue. Deposit reinvestment rates are stable, although there is some geographic concentration in the deposit book. CUB does not have access to the Reserve Bank of New Zealand's repo facility and has limited contingent funding sources. SUPPORT RATING AND SUPPORT RATING FLOOR CUB's Support Rating of '5' and Support Rating Floor of 'No Floor' reflects our view that, while support from the New Zealand sovereign (AA/Stable) is possible, it cannot be relied upon. We believe the Open Bank Resolution Scheme (OBR), which allows the imposition of losses on depositors and senior debt holders to support a failing institution, reduces the sovereign's propensity to support its financial institutions, despite not applying to CUB. RATING SENSITIVITIES IDRS AND VIABILITY RATING Positive rating action on the Issuer Default Ratings and Viability Rating would require an improved risk appetite, possibly through lower-risk underwriting or a stronger risk control framework, evidenced by CUB's performance through the cycle. Conversely, negative rating action may be taken if risk appetite increases substantially. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to changes in assumptions around the propensity or ability of the New Zealand state to provide timely support to CUB. The rating actions are as follows: Credit Union Baywide Long-Term IDR published at 'BB'; Outlook Stable Short-Term IDR published at 'B' Viability Rating published at 'bb' Support Rating published at '5' Support Rating Floor published at 'No Floor' Contact: Primary Analyst Jack Do Associate 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 Parson Singha Senior Director + 66 2108 0151 Date of the Relevant Ratings Committee: 19 September 2016 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1013209 Solicitation Status here Endorsement Policy here 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 PUBLIC 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. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes 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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