Fitch Affirms Wairarapa Building Society at 'BB+'

Thu Aug 14, 2014 9:29pm EDT

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(The following statement was released by the rating agency) SYDNEY, August 14 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) of Wairarapa Building Society (WBS) at 'BB+'. The Outlook is Stable. A full list of rating actions can be found at the end of this commentary. KEY RATING DRIVERS - IDR AND Viability Rating (VR) The affirmation of WBS's IDR, VR and Stable Outlook reflect the society's moderate franchise, good asset performance but large relative loan and investment property exposures, and adequate capital ratios containing satisfactory buffers over regulatory minimums. WBS's conservative underwriting approach is reflected in the performance of its loan book despite significant single name concentration that can increase volatility. At FYE14, WBS had three impaired loans totalling NZD516,000 and well secured past due loans had increased by 59% to NZD1.7m (1.9% of net loans). However, average loan to value ratios (LVRs) on these loans are low and since year end two of the impaired loans have been reclassified as performing. Capital ratios are high relative to peers but Fitch views this as appropriate given WBS's small absolute capital base, limited capital raising options, and large loan concentrations. Measured by non-risk-adjusted total tangible equity/total tangible assets, capitalisation decreased slightly to 13.9% at FYE13 (FYE12 15.1%) as asset growth outpaced earnings. Operating as a price taker, strong lending competition could constrain loan growth and profitability in the financial year 2015 (FY15) although strategic initiatives to support growth appear to have gained some early traction. In FY14 operating profits increased by 11% year on year to NZD330,000 as the society improved its cost base and generated stronger rental income, but offset somewhat by further fair value write downs in its investment property portfolio. WBS's loan book is fully deposit funded and the society's loans/deposit ratio was a solid 93% at FYE14. The society's liquidity position was well in excess of its trust deed requirements at FYE14, although it consisted mainly of NZD18m of undrawn committed facilities. WBS's on-balance-sheet liquidity is a more modest NZD13.3m. RATING SENSITIVITIES - IDR AND VR WBS's IDR and VR are unlikely to be upgraded due to the society's small absolute capital base, small domestic franchise, and geographic and large-loan concentrations. A negative rating action could occur if asset quality unexpectedly declined leading to capital erosion. Damage to WBS's franchise from a weaker capital position or operational risks could also result in a rating downgrade. In addition, any reputational damage could in turn impact deposits and threaten the society's liquidity and access to funding. KEY RATING DRIVERS & RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that while support from the authorities is possible, it cannot be relied upon. The Support Rating and Support Rating Floor take into account the existence of a legal framework - the Open Bank Resolution Scheme (OBR), which reflects a reduced propensity of the New Zealand government to support financial institutions. The Support Rating and Support Rating Floor are sensitive to any change in assumptions around the propensity or ability of the New Zealand government to provide timely support to the bank. The rating actions are as follows: Wairarapa Building Society (WBS): Long-Term IDR affirmed at 'BB+'; Outlook Stable; Short-Term IDR affirmed at 'B'; Local Currency Long-Term IDR affirmed at 'BB+'; Outlook Stable; Local Currency Short-Term IDR affirmed at 'B'; Viability Rating affirmed at 'bb+'; Support Rating affirmed at '5'; and Support Rating Floor affirmed at 'NF'. Contact: Primary Analyst John Birch Director +61 2 8256 0345 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Secondary Analyst Tim Roche Director +61 2 8256 0310 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0326, Email: Leni.Vu@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014 is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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