Moody's upgrades Kiwibank rating

Moody's Investors Service has upgraded Kiwibank's financial strength rating to C- from D+ and affirmed its Aa3 senior unsecured and issuer ratings after the state-owned New Zealand bank reduced its reliance on its parent New Zealand Post for capital support and improved its asset quality.

Moody's said Kiwibank had relied on capital injections from its parent since its formation in 2002 as it initially grew lending quickly with cut rate pricing, but over the past few years it had moderated that growth and improved its profitability.

The ratings agency cited a slowdown in lending growth from 42 per cent in the four years to 2011 to nine per cent in the last four years.

"Kiwibank's profitability has also improved, driven by an improving net interest margin and a continued focus on expense management," Moody's said.

"As a result of its moderating loan growth and improved profitability, the bank's ability to generate capital internally has improved," it said.

"While the outlook for profitability in the broader banking sector is challenging - given margin pressure from competitive forces and a continued customer preference for fixed-rate mortgages - Moody's expects that the bank will manage its loan growth to minimize any need for any further injections of capital from its parent."

Kiwibank announced earlier this week it was self-sufficient for capital for the first time and planned to start paying dividends later this year.