Banks rely on Aussie generosity

At a briefing in Auckland yesterday the ratings agency explained its recent changes to its rating methodology, and described how the changes have affected its ratings of New Zealand's deposit taking institutions.

S&P determines its ratings by looking at three factors: 'macro' factors (each company's rating starts from the 'anchor' rating of its home country); company specific factors such as capital and earnings, risk position and liquidity; and finally, 'external support'.

For this category, S&P looks at both 'government support' (for institutions that have 'systemic importance') and 'group support' (for companies that are owned by a larger group), and picks which one has the bigger positive effect on the company's credit rating.

Government support gives each of the big four Australian banks a two-notch boost to their credit ratings.  This flows through to their New Zealand subsidiaries, which all benefit from group support to the tune of three notches.