Moody's today downgraded the debt ratings of New Zealand's four largest banks, citing the country's 'challenging' economic environment after two devastating earthquakes in Christchurch.
The move to lower the ratings of ANZ National, Bank of New Zealand, ASB and Westpac New Zealand to Aa3 from Aa2 follows a downgrade to the four banks' Australian parents last week. Aa3 is the fourth highest rating on a 21-point scale.
'It reflects the ongoing impact of the challenging economic environment in New Zealand, which has resulted in asset quality metrics continuing to deteriorate - albeit at a slower pace - beyond minimum expectations,' Moody's said.
The credit rating agency said the Christchurch earthquakes in September and February, the latter of which killed 181 people, were weighing on the economy.
'Recent natural disasters have devastated parts of the country, with GDP (gross domestic product) expected to be low in the year to March 2012,' it added.
Moody's also expressed reservations about the banks' reliance on short-term offshore funding, saying attempts to address the problem by attracting more retail deposits were limited by New Zealand's small 4.3 million population.
However, it said the economy was likely to pick up next year as a $12.3 billion reconstruction programme in Christchurch got into full swing. 'Funds to support the reconstruction will be largely sourced from reinsurance obtained from outside the economy and hence these will provide a genuine boost to activity,' it said.
