Moody's ups Newcastle Permanent's outlook to stable

Moody's has raised the outlook on Newcastle Permanent Building Society's rating to stable from negative and affirmed the long-term rating at A2, but it said geographic concentration of the franchise limits chances of a future upgrade.

The society's franchise is concentrated within regional NSW, with 65 per cent of loans sourced from the Hunter region.  According to Moody's, such concentration means its rating is particularly sensitive to the performance of this part of the state.

Supporting the change in outlook was NPBS's strong tier-one ratio, which stood at a seven-year high of 18.79 per cent in December. Asset quality also held up well during the crisis and non-performing loans were at their lowest levels in five years at 0.18 per cent.

A conservative funding strategy and recent profit recovery are other reasons for the stable outlook on the building society.

Still, a rating review could be triggered if its tier-one capital ratio fell below 12 per cent or impaired loans rose above 0.8 per cent, or there was a significant change to the society's funding strategy.