The credit rating outlook for New Zealand’s main banks has been raised as a result of the country’s robust economic recovery and coronavirus crisis management.

According to Fitch Ratings, the outlook for ANZ, ASB, BNZ and Westpac has moved to stable from negative, whilst maintaining their A+ ratings.

Fitch added that the economic forecast had improved considerably since the previous review in the middle of last year, and it now predicts New Zealand’s economy to expand by 5.5% in 2021 and by 3.3% in 2022.

The ratings agency said in a statement: "A continued economic recovery should support the financial profiles of the four banks.”

Fitch added that the banks’ short-term profits should improve "significantly" in 2021, as there would not be substantial amounts put aside for potential bad and doubtful debts like there were last year, says an RNZ report.

In addition, according to a survey undertaken by KPMG, there was a noticeable rebound in bank profitability as lending increased and bad debts reduced.

According to the credit agency, a modest weakening in the quality of the banks’ assets is forecast, as numerous Covid support initiatives were removed.

Moreover, profitability over the longer-term would be impacted by elevated costs and more stringent competition in regard to mortgages.

"However, we believe a large deterioration is unlikely,” the agency stated.

It added that another reason for hiking the outlook for the banks was support from 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."