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Press Release: S&PGR Affirms New Zealand Ratings; -2-

30 Jan 2018 5:19 am
banks' New Zealand subsidiaries, and possibly their cost of funding. 
 
The possibility that foreign investors become less willing to fund banks at 
low interest rates poses a risk to the banking system, the broader economy, 
and, in turn, government finances. However, we believe that New Zealand's 
banks will retain ready access to external markets. We believe the risks to 
the banking sector remain elevated due to the possibility of a sharp 
correction in property prices. Data from the bank of International Settlements 
suggest real property prices in New Zealand have risen faster in the half 
decade leading to the first quarter of 2017 than in any other economy we 
cover. We observe that real house price inflation decelerated sharply in 2017. 
The current slowdown in property prices that reflects the application of 
macroprudential tools and higher lending rates due to an increase in funding 
costs (see "Banking Industry Country Risk Assessment: New Zealand," published 
Nov. 13, 2017). We note that the Reserve Bank of New Zealand (RBNZ) announced 
it will partly unwind some of its macroprudential tightening--i.e., its 
loan-to-value ratio--in January 2018, but at the same time structural 
challenges remain in the property market. 
 
We also believe some of the downside risks to the New Zealand banks have 
diminished because dairy prices recovered compared with 2015. Nevertheless, we 
expect that many dairy farmers will remain reliant on continuous debt 
rollovers, given the surge in dairy sector debt in recent years. 
 
We believe the RBNZ's inflation mandate and supervisory role have strong 
credibility. We also believe the RBNZ will remain operationally independent 
from the government. The new government is undertaking a review of the RBNZ 
Act 1989 to include in the reserve bank's objectives steps to maximize 
employment alongside price stability, provide for a committee decision-making 
model, and update the role of the reserve bank board. 
 
The one-notch distinction between the long-term foreign currency and local 
currency ratings is because of the credibility of the country's monetary 
policy, the freely floating currency, and the depth of domestic debt markets. 
Monetary flexibility can support a sovereign's greater debt-servicing 
flexibility in its own currency. 
 
KEY STATISTICS 
 
RATINGS SCORE SNAPSHOT 
 
RELATED CRITERIA 
 
     -- Criteria - Governments - Sovereigns: Sovereign Rating Methodology, 
Dec. 18, 2017 
     -- General Criteria: Methodology For Linking Long-Term And Short-Term 
Ratings, April 7, 2017 
     -- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 
     -- General Criteria: Methodology: Criteria For Determining Transfer And 
Convertibility Assessments, May 18, 2009 
 
RELATED RESEARCH 
 
     -- Global Sovereign Rating Trends, Jan. 10, 2018 
     -- Sovereign Ratings History, Jan. 5, 2018 
     -- Sovereign Ratings List, Jan. 5, 2018 
     -- Sovereign Risk Indicators, Dec. 14, 2017; A free interactive version 
is available at www.spratings.com/sri 
     -- Banking Industry Country Risk Assessment: New Zealand, Nov. 13, 2017 
     -- Ratings On 23 Australian Financial Institutions Lowered On Buildup Of 
Economic Imbalances, May 21, 2017 
     -- Default, Transition, and Recovery: 2016 Annual Sovereign Default Study 
And Rating Transitions, April 3, 2017 
 
In accordance with our relevant policies and procedures, the Rating Committee 
was composed of analysts that are qualified to vote in the committee, with 
sufficient experience to convey the appropriate level of knowledge and 
understanding of the methodology applicable (see 'Related Criteria And 
Research'). At the onset of the committee, the chair confirmed that the 
information provided to the Rating Committee by the primary analyst had been 
distributed in a timely manner and was sufficient for Committee members to 
make an informed decision. 
 
After the primary analyst gave opening remarks and explained the 
recommendation, the Committee discussed key rating factors and critical issues 
in accordance with the relevant criteria. Qualitative and quantitative risk 
factors were considered and discussed, looking at track-record and forecasts. 
 
The committee agreed that the debt assessment had improved. All other key 
rating factors were unchanged. 
 
The chair ensured every voting member was given the opportunity to articulate 
his/her opinion. The chair or designee reviewed the draft report to ensure 
consistency with the Committee decision. The views and the decision of the 
rating committee are summarized in the above rationale and outlook. The 
weighting of all rating factors is described in the methodology used in this 
rating action (see 'Related Criteria and Research'). 
 
RATINGS LIST 
Ratings Affirmed 
 
New Zealand 
 Sovereign Credit Rating 
  Foreign Currency                      AA/Stable/A-1+ 
  Local Currency                        AA+/Stable/A-1+ 
 Transfer & Convertibility Assessment 
  Local Currency                        AAA 
 
New Zealand 
 Senior Unsecured                       AA 
 Senior Unsecured                       AA+ 
 Short-Term Debt                        A-1+ 
 Commercial Paper                       A-1+ 
 
AUSTRALIA 
S&P Global Ratings Australia Pty Ltd holds Australian financial services 
license number 337565 under the Corporations Act 2001. S&P Global 
Ratings'credit ratings and related research are not intended for and must not 
be distributed to any person in Australia other than a wholesale client (as 
defined in Chapter 7 of the Corporations Act). 
 
Certain terms used in this report, particularly certain adjectives used to 
express our view on rating relevant factors, have specific meanings ascribed 
to them in our criteria, and should therefore be read in conjunction with such 
criteria. Please see Ratings Criteria at www.standardandpoors.com for further 
information. Complete ratings information is available to subscribers of 
RatingsDirect at www.capitaliq.com. All ratings affected by this rating action 
can be found on the S&P Global Ratings' public website at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column. 
 
Primary Credit Analyst: Anthony Walker, Melbourne (61) 3 9631 2019; 
                        anthony.walker@spglobal.com 
Secondary Contact: KimEng Tan, Singapore (65) 6239-6350; 
                   kimeng.tan@spglobal.com 
 
 
The article with statistical information is available in full 
at www.standardandpoors.com. Registration is free. To access the full article, 
select "Ratings Actions" in the left navigation under Ratings Resources, 
then choose the Press Releases tab. 
 
 
 
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