CBS hails rating news

CBS Canterbury says its new BB+ credit rating is a good outcome for a lender of its size as it continues a longer-term push to become a bank.

The NZAX-listed building society yesterday received a BB+ rating with a stable outlook from international ratings agency Standard & Poor's.

S&P credit analyst Gavin Gunning said the ratings reflected CBS' small capital base by international standards, and its large commercial exposures relative to capital size.

At March 31, CBS Canterbury, which lends mostly on residential and commercial property, had $417 million of loans, plus cash and cash equivalents of $93.6m. Total assets stood at $549.52m at the end of the 2008-09 financial year and total liabilities at $500.93m to give equity of $48.59m.

Chief executive Bryan Inch said Standard & Poor's comments about capital and loans should be put in the context of the way the society operated.

"There was a comment about our capital being lower than some of our peers. [But] we can afford to run on lower capital because we run lower risk lending . . . We have nothing over $10m and our top twenty loans are under $100m."

One of the last building societies to be rated, CBS Canterbury has come in ahead of the pack. Many others had been rated BB rather than BB+.

The Reserve Bank Amendment Act passed in September 2008 lays out new regulations for non-banks including the requirement for a credit rating by March 1, 2010.

During the classifying process Standard & Poor's had said to CBS it was "best in class . . . certainly we're judged as much more bank-like than anyone in the non-bank sector", Inch said.

Finance companies that had had BBB- or higher ratings (before the recession and rating downgrades) had benefited from profitability and strong backers. "But obviously the recession has shown that up," Inch said.

The building society did have aspirations to move towards bank status but he could not give any timeframe for such a move, he said. "We operate as bank-like as we possibly can be. We've made no secret we'd eventually like to go down a banking licence track . . . the underlying issue we have is that the Reserve Bank would want double the scale we currently are."

Growth to double the society's size and loan book could be achieved both organically and through acquisitions, Inch said. "The industry does require consolidation. [But] it's very difficult to facilitate consolidation in this market as everyone's still getting through issues in their loan book quality."

Gunning said CBS was one of three New Zealand building societies, credit and savings institutions that S&P had given a BB+ rating.

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