Credit rating agency Fitch Ratings has signalled that New Zealand’s four biggest banks could be in line for upgrades. On Thursday it revised its outlook on ANZ New Zealand, BNZ and Westpac New Zealand to positive from stable and affirmed their A+ ratings. It also moved the outlook on ASB’s AA- rating to positive, interest.co.nz reported.
An outlook change is not an upgrade. None of the four ratings has moved. What Fitch is doing is telling investors which way it expects them to go, and the reason it gives is not the banks’ recent trading. It is a set of Reserve Bank rules that will not fully apply until the end of 2028.
Those rules come from the Reserve Bank’s review of bank capital, the buffer of money banks must hold to soak up losses. The central bank published its decisions on 17 December 2025. For ANZ, ASB, BNZ and Westpac the biggest change was a new layer called loss-absorbing capacity, or LAC. The Reserve Bank’s questions and answers on the review describe it as a new tool that can help recapitalise a distressed bank. In practice it means the largest banks will lean more on subordinated debt that can be written off or turned into shares if a bank gets into serious trouble.
The detail that caught Fitch’s attention is who will hold that debt. The four banks will have to issue their LAC instruments to their Australian parents, ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation.
“The Reserve Bank of New Zealand’s new capital framework mandates internal issuance of LAC instruments to the Australian parents of the New Zealand major banks, supporting a single-point-of-entry approach to resolution,” Fitch says.
Resolution is the regulators’ word for dealing with a failing bank without a taxpayer bailout, and single point of entry means handling a banking group from the top, through the parent. Fitch says the new instruments “would provide a mechanism for the New Zealand subsidiaries to access the LAC buffers raised by their parents”, strengthening their place inside the wider Australian group if something went wrong.
That matters because of how Fitch rates the New Zealand banks now. Their ratings lean on the support Fitch expects their parents to give, but Fitch currently anchors that support to a measure of each parent’s own risk of failing, rather than to the parent’s full rating, which also counts the protection from the parent’s debt buffers. “This reflects uncertainty over whether the New Zealand banks’ senior creditors would benefit from those buffers under the existing framework, given differences between the Australian and New Zealand regulatory capital regimes,” Fitch says.
Once the banks are allowed to issue LAC to their parents, which Fitch expects by late 2028, it expects to improve the shareholder support part of their ratings. ASB already sits one notch above the other three because Fitch rates its parent, Commonwealth Bank of Australia, at AA, one notch above the AA- it gives the other three Australian parents. Interest.co.nz reported last December that Fitch saw the new capital rules as a possible trigger for big bank upgrades.
The shift in the type of capital is large. The Reserve Bank’s decision document estimated that common equity at the four big banks, the most expensive form of capital, would fall by about $3.4 billion, or 7 percent, from $46.0 billion to $42.6 billion. Because of the new LAC layer, their total regulatory capital was expected to rise 25 percent, from $57.6 billion to $72.2 billion. The Reserve Bank said the change still brings a lower overall cost of funds for the big four, because debt of this kind is cheaper to raise than shareholders’ equity.
When the decisions were announced in December, Governor Anna Breman said the new settings would cut the overall cost of banks’ funding, and that the Reserve Bank expected the benefit to reach New Zealanders through more lending and lower rates, something it would monitor closely.
None of this is in force yet. In June the Reserve Bank opened consultation on a crisis preparedness package that includes the design of the LAC instruments. Submissions closed at 5pm on Friday 11 September, the day after Fitch’s announcement. Most of the new standards under the Deposit Takers Act are due to be issued by 31 May 2027 and to take effect on 1 December 2028, while the crisis preparedness standards are to be issued in 2028 and take effect in 2029. According to interest.co.nz, the Reserve Bank will consult on an exposure draft specifically for the LAC requirements next year, with the rules phasing in from December 2028.
Ratings matter to banks because they fund their lending partly with money borrowed from investors, and the Reserve Bank requires every registered bank to hold a credit rating. On the same day as Fitch’s move, BNZ said demand for its new five-year bond had passed $1.2 billion. The bank had gone to market on Monday looking for up to $100 million and ended up borrowing $1.25 billion at 4.844 percent a year, higher than its advertised five-year term deposit rate of 4.70 percent. The bonds were open to retail investors, with a $5,000 minimum, and BNZ expects them to carry an AA- rating from S&P Global Ratings and A1 from Moody’s, in line with its own ratings.
Fitch is far less upbeat about the government. In March it revised its outlook on New Zealand’s AA+ sovereign rating to negative, saying a substantial reduction in public debt was becoming harder to envisage because fiscal consolidation had been delayed in the past few years. That leaves Fitch with positive outlooks on the four biggest banks and a negative one on the Crown.
For bank customers nothing changes today. An outlook revision does not alter anyone’s mortgage, term deposit or account, and the ratings themselves are the same as they were a week ago. The longer-run question is the one the Reserve Bank raised in December, whether lower funding costs under the new rules actually reach borrowers.
Do you think tying New Zealand’s big banks more closely to their Australian owners makes your money safer, or less independent? Tell us what you think in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job π
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