OREANDA-NEWS. Fitch Ratings says in its report entitled, "Peer Review: New Zealand Major Banks - Strong Franchises but Rising Macro-Economic Pressure," that it expects the county's banks to maintain their market leading positions amid increasing macro-economic pressures which are likely to challenge asset quality and profit growth.

New Zealand's major banks have large exposures to dairy farmers and the residential housing market, both of which are facing challenges. New Zealand's dairy farmers are battling low dairy payouts for a second season which is likely to stretch their cash flow, ultimately impacting the banks' asset quality. At the same time, New Zealand's households are highly indebted and therefore vulnerable to interest rates and employment shocks. Individually, each segment's challenges are unlikely to have a materially negative impact on the banks. However, a combined scenario of prolonged low dairy prices and house price correction - most likely driven by a severely weakened labour market, a significant increase in interest rates, and/or a sharp change in immigration flows, could result in losses significant enough to impact the banks' profitability and capitalisation. However, a sharp deterioration in the operating environment is not Fitch's base case.

New Zealand's major banks hold a dominant market share of more than 85% of system assets as of end-September 2015 which provides them with significant pricing powers. At the same time, maintaining conservative risk appetites - reflected in solid risk controls and underwriting standards - are likely to be key to manoeuvring through a potentially more challenging operating environment.

Fitch affirmed the ratings of ANZ Bank New Zealand Limited, ASB Bank Limited, Bank of New Zealand and Westpac New Zealand Limited on 15 February 2016. The Long-term and Short-term IDRs as well as Support Ratings reflect the extremely high likelihood of support from their parents, should it be required. Fitch views the banks as core subsidiaries of their respective Australian parents, given their focus on core customers and products which align with their parents' strategies, as well as the strong regulatory links between the New Zealand and Australian regulatory authorities.