Standard and Poors on Australasian banks

Some follow-on from last week’s article on possible bank failure in New Zealand

S&P agrees with us on NZ banks!

Gold Survivial Guide,

7 December, 2011

Back on the subject of banks and following on from our article last week “Bank Failures – Could they happen in NZ? The Reserve Bank thinks so”, we stumbled across the S&P report on Asia Pacific banking after the downgrade announcement.  (And no we don’t have any inside banking connections.  It was merely coincidental that we wrote an article on bank failure 2 days before a worldwide bank downgrade!).  

Anyway here’s the relevant section of the S&P report to little ole NZ... [emphasis added ours] 

"We believe "systemwide funding" is an area of relative strength for the region, and we assess 10 of the 16 systems as "very low risk" or "low risk". One reason for this is the region's high domestic savings rate, which exceeds 30% of GDP in a number of countries. This is an important contributor to the relatively stable deposit bases that reduce the need for external funding. Two notable exceptions to this general trend are Australia, which we evaluate as "intermediate risk", and New Zealand, which shows "high risk". Persistent and significant current account deficits--fuelled by lower savings relative to investment demand and consumption--mean these two countries show the lowest level of customer deposits and the greatest dependence on net external borrowings in the region. Nevertheless, we believe these risks are partly mitigated by factors such as supportive central banks, access to sizable domestic debt capit"

As we pointed out in last weeks article the “high risk” to the New Zealand bank sector is that they rely upon offshore funding for a good portion of their borrowing.  So don’t say you haven’t been warned.