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S&P gives first building society rating

New Zealand's third largest building society, Southern Cross has been given a BB long term rating by Standards and Poor's, with a stable outlook.

Thursday, August 27th 2009, 5:08PM


SCBS, which has been operating since 1923, is the first building society in New Zealand to be rated by Standard & Poor's.

The ratings on SCBS partly reflect S&P's opinion of the concentration of SCBS's customers in the higher-risk sectors of rural and commercial lending. "Furthermore, in the current economic environment, there has been an increase in SCBS's nonperforming assets. These risks are mitigated by SCBS's sizeable portfolio of residential loans, manageable loan-to-value ratios, and proactive management of the portfolio in the weakening environment."

"Given SCBS is undergoing a cultural and strategic change and faces an uncertain operating environment, the building society is exposed to a degree of risk. However, unlike some non-bank deposit-taker peers in New Zealand, SCBS is free of related-party concerns. What's more, its governance framework, which has been revamped under the new board and management, compares favorably to many other entities in the sector," S&P says.

"Importantly, the ratings on SCBS benefit from the building society's solid retail funding base and sound capital ratios," Standard & Poor's credit analyst Gavin Gunning said. "We note, however, the absolute size of SCBS's capital is small by international standards, affording moderate protection against major operational or other negative risk events, should they arise."  

"A weakening of SCBS's financial profile-most likely due to the negative effects of a weaker-than-expected economic outlook on asset quality and earnings-could lead to a lowering of the 'BB' rating," added Mr Gunning. "Conversely, an increase to ‘BB+' may be possible in the medium-to-long term if economic conditions improve, industry volatility moderates, and SCBS strengthens its business and financial profiles."


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