Bank ratings unaffected by tax case

Richard Baron

ALL ABOUT TAX: New Zealand's banks could pay disputed tax on structured finance transactions without putting pressure on their credit ratings.

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New Zealand's banks could pay disputed tax on structured finance transactions without putting pressure on their credit ratings, Standard and Poor's said.

The credit rating company today affirmed the ratings of ANZ, BNZ, ASB and Westpac.

Yesterday BNZ lost a court case in which $654 million of tax and interest is disputed, but it said it is likely to appeal. Penalties could also result.

Other banks face court action. ANZ has $562m in dispute, Commonwealth Bank of Australia, which owns ASB, has $280m in dispute and Westpac $903m in dispute, according to a report by UBS analysts.

S&P noted that all the four major banks have significant contingent liabilities over the disputes with Inland Revenue (IRD).

"Although the impact of the IRD disputes on the major New Zealand banks' earnings could be material, the affirmation on the major New Zealand banks' ratings reflects their core status within the parent bank groups," S&P said.

There was an increased probability that the four major banks would need to make significant payments to the IRD in relation to these disputes.

"However, we consider that these banks could make such payments without putting pressure on their ratings."

The payments would be one-off items and shareholders were likely to show forbearance for any resulting cut in earnings or dividend payments.

"We expect that the banks would be topping up their equity positions in the unlikely scenario that a resultant loss caused a significant reduction in their equity bases at the group level."

The payments are unlikely to pose any significant liquidity challenges, S&P said.

A materially punitive penalty could put pressure on the consolidated group earnings or equity bases, S&P said.

NZPA