OREANDA-NEWS. Fitch Ratings has affirmed New Zealand Association of Credit Unions' (trading as Co-op Money NZ) Long- and Short-Term Issuer Default Ratings (IDR) at 'BB+' and 'B', respectively. The Outlook on the Long-Term IDR is Stable.

KEY RATING DRIVERS - IDRs
The affirmation of Co-op Money NZ's IDR and Stable Outlook reflect Fitch's view that the organisation is likely to maintain its performance over the next 12-24 months. Co-op Money NZ's ratings are constrained by its limited franchise and customer base. The association has a strong position in its key markets, servicing 100% of the credit unions and building societies in New Zealand however the combined market share of its members is low relative to total system assets and unlikely to reach investment grade ratings due to their size, geographical concentration and limited financial flexibility.

Co-op Money NZ operates a simple business model which carries a low degree of market and credit risk. It acts as a trade organisation and service provider for its 18 members, offering sector and technology support, central banking services and payment solutions with scale benefits that could not be achieved individually. Outside of its wholly owned insurance subsidiary - Credit Union Insurance Limited (IFS: BBB-/Stable), trading as Co-op Insurance NZ, there is no direct exposure to its members' end customers. Co-op Money NZ also offers its services to institutions outside its member base at differential pricing. This currently accounts for a small proportion of revenue but Fitch expects it to grow over the next 24 months.

At FYE15, the provision of central banking operations accounted for 94% of Co-op Money NZ's balance sheet assets and all non-equity balance sheet funding. Depositor concentration remains evident - the two largest depositors accounted for 59% of total deposits at FYE15. Asset concentration is also high with exposure to the four major New Zealand banks (IDR: 'AA-') accounting for 74% of total investments. Co-op Money NZ's liquidity risk is partly mitigated by the high quality and short duration of its investment portfolio.

Fitch expects Co-op Money NZ's profitability to remain around current levels in FY16. Absolute profitability levels are low however is reflective of the organisations' business model and subsidies provided on services to members. Co-op Money NZ is gradually expanding its non-member customer and external revenue sources however benefits are not expected to be realised in the short term due to ongoing investment into systems and technology.

Co-op Money NZ's capitalisation has gradually improved however remains modest with tangible common equity to tangible assets ratio of 10.1% at FYE15. The absolute level of capital remains small and the organisation has limited sources to raise new equity. Distribution of base capital noteholders are not directly related to profitability, which could result in some volatility in capital generation.

RATING SENSITIVITIES - IDRs
Co-op Money NZ's IDRs are sensitive to developments in New Zealand's non-bank financial institution sector. Negative rating action could take place if Co-op Money NZ were to lose the confidence of its members, resulting in member exits. A weakening in the operating viability of its members, particularly the larger ones would also place negative pressure on the ratings.

Significant diversification of Co-op Money NZ's non-member revenues and an increase in capital and profitability levels would be required for positive rating momentum which Fitch considers unlikely in the short term.

The rating actions are as follows:

New Zealand Association of Credit Unions:
Long-Term IDR affirmed at 'BB+'; Outlook Stable; and
Short-Term IDR affirmed at 'B'.