The credit rating outlook for the country's main banks has been raised because of the strength of New Zealand's economic recovery and management of the pandemic.
Fitch Ratings, one of the big three global agencies, has raised the outlook for ANZ, ASB, BNZ and Westpac to stable from negative, and maintained their ratings at A+, matching those of their Australian parents.
It said the economic outlook had improved significantly since its last review in mid-2020, and it now expected New Zealand's economy to grow by 5.5 percent this year, and by 3.3 percent next year.
"A continued economic recovery should support the financial profiles of the four banks," it said in a statement.
Fitch said short- term profits for the banks should improve "significantly" this year because there would not be the large amounts set aside for possible bad and doubtful debts, which the banks made last year.
The most recent survey of the sector by KPMG showed a marked rebound in bank profitability as lending increased and bad debts reduced.
The credit agency expected a modest weakening in the quality of the banks' assets as various support measures brought in during the Covid-19 outbreak were removed, while longer term profitability would be affected by higher costs and tougher competition in the mortgage market.
"However, we believe a large deterioration is unlikely."
It said another factor in raising the outlook for the banks was the support of their Australian parents.
"We believe New Zealand is a core market for Australia's four major banks and a default by a New Zealand subsidiary could constitute huge reputational risk to the parent."