Fitch gives bank qualified approval

Last updated 15:42 05/12/2013

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Fitch Ratings has assigned New Zealand's Co-operative Bank a long-term credit rating of BBB- and a long-term outlook of stable.

The BBB- rating is in line with the Standard & Poor's credit rating of the bank.

Fitch said its rating and outlook reflected the bank's robust capitalisation, sound funding, solid and stable asset quality, and simple business model, which were offset by modest profitability and a limited domestic franchise.

The Co-operative Bank posted a profit of $5.1 million for the year to March 31.

The bank's profitability was likely to improve as it continued to implement its five-year strategic plan, Fitch said.

The plan should help address the bank's weak cost efficiency by better use of current resources and expanding its product set to grow revenue, it said.

However, it could take a while for the bank's initiatives to flow through to profitability, the ratings service said.

Therefore, the bank's profitability was likely to continue to lag behind Kiwi peers this financial year, Fitch said.

Meanwhile, the Co-operative Bank's strong capital position relative to its peers offset some of the risk associated with low profitability and was unlikely to deteriorate materially despite its growth ambitions, Fitch said.

Fitch said the bank's asset quality was solid, reflecting its sound approach to underwriting loans.

Mortgages dominated the bank's loan book, with exposures spread throughout New Zealand.

Fitch said the bank's funding was dominated by retail deposits.

While the Co-operative Bank accounted for less than 1 per cent of the banking market, it had a nationwide distribution network of 34 branches.

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- Fairfax Media

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