Liberty earns credit rating on par with banks

Ratings boost fuels growth

Liberty earns credit rating on par with banks

Liberty Financial, a non-bank deposit taker, has achieved a significant milestone by securing an upgraded credit rating from S&P Global. This puts Liberty in a unique position, becoming the only non-bank in New Zealand with an investment-grade rating (BBB/Stable/A-2).

This achievement elevates Liberty's standing to match some established banks, offering investors greater confidence.

"The higher credit rating is a testament to the company's ongoing financial strength and success," said Liberty CEO Aaron Skilton (pictured above left).

Why non-banks are traditionally less creditworthy than banks

Traditionally, non-banks haven't been seen as creditworthy as banks for a few key reasons.

Firstly, banks generally get their money from deposits, which are a very stable source of funding.

People park their cash in accounts, and banks know that money will likely be there for them to lend out. Non-banks, on the other hand, mainly rely on borrowing from investors or issuing bonds.

This funding can be less stable, especially during economic downturns when investors may become spooked and pull back their money.

Banks are also heavily regulated by the Reserve Bank of New Zealand (RBNZ). These regulations are designed to protect depositors and ensure the stability of the financial system. Non-banks typically have less stringent regulations, which allow them to offer more flexible niche products.

However, this could also increase the risk of them encountering financial difficulties.

Lastly, banks are large, established institutions with a long history of financial stability. This gives them a reputation for being safe and reliable.

Non-banks, especially newer ones, may not have the same track record or the resources to weather financial storms as easily.

How Liberty is changing the game

However, the lines are blurring a bit. As Liberty's case shows, strong non-banks can achieve credit ratings similar to some established banks.

Liberty General Manager Igor Stychinsky (pictured above right) said S&P Global upgraded several Australian non-major banks and financial institutions and their NZ subsidiaries due to numerous factors.

“These include reduced industry risks because of the continued strength of regulatory and governance standards in the banking sector and a stable outlook,” Stychinsky said.

“Liberty Financial has benefited from this sector upgrade that also recognises the business’ long-term stable performance and sound financial position.”

Stychinsky said the rating boost reflected the confidence investors can have in the security, flexibility and competitive returns from a Liberty term deposit.

“With this rating increase, Liberty term deposits are competing with some of the banks as a safe and secure investment option,” he said.

“The rating also puts Liberty on par with some New Zealand Banks like Heartland, the Co-Operative Bank and SBS. A rating boost to BBB is a vote of reassurance from S&P.”

What are Liberty’s term deposits like?

Liberty’s credit risk for a term deposit customer is similar to some non-major banks, Stychinsky said the return is generally over 1% more for a 12-month term deposit compared to others. 

As a lender, this helps Liberty have access to more sources of capital and helps to ensure continuous funding for its business.

“Our term deposits offer no account or transaction fees and flexible terms from three months to 60 months, to cater for all kinds of investors,” Stychinski said.

“Our current hero rate is 7.1% for 12 months. With our term deposits, investors get the confidence of Liberty’s experience and track record.”

Liberty’s continued expansion

The rating change comes amid team expansion for the non-bank, recently announcing new BDM appointments for Wellington and the South Island.

“The business will continue to expand, building on more than 20 years that our term deposit arm has operated. In that time, we have shown investors that we are a strong and stable option for Kiwis seeking to improve their return on savings,” Stychinsky said.