S&P downgrades big four Aussie banks

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Standard & Poor's has cut the credit ratings for the big four Australian banks and their New Zealand subsidiaries, after a review that saw some of the world's biggest banks also downgraded.

Friday, December 2nd 2011, 11:53AM 1 Comment

by Niko Kloeten

Following a change to its ratings methodology, S&P has lowered the long-term ratings of Westpac, National Australia Bank, ANZ and the Commonwealth Bank of Australia by one notch from AA to AA- with stable outlooks.

Their New Zealand arms Westpac New Zealand, BNZ (NAB), ASB (CBA) and ANZ National and UDC Finance (ANZ) were also cut from AA to AA-.

In its reports on the four "pillars" of the Australian and New Zealand banking system, S&P noted the banks' reliance on offshore funding but said the overall risks were low, due to their market dominance and the relatively strong economy in Australia.

However, S&P also appears to be banking on a bailout if things go horribly wrong for the big four.

For example: "Our counterparty credit rating on Westpac is two notches higher than the SACP [stand-alone credit profile], reflecting our view of a high likelihood of extraordinary government support in a crisis.

"We believe this is due to Westpac's high systemic importance in Australia, and our assessment of the Australian government being highly supportive of institutions core to the national economy."

S&P noted that ANZ "conducts about 20% of its lending in New Zealand, which has a weaker '3' economic risk score compared with Australia" and said it was "cautious" about ANZ's expansion strategy for Asia.

It said the banks had "strong" business positions, "adequate" capital and earnings, risk position, and liquidity, "average" funding and potential government support.

ASX-listed investment bank Macquarie Group was hit harder by the ratings review, being downgraded two notches to BBB, although Macquarie Bank itself stayed at A-.

Rabobank, which also has a New Zealand subsidiary, has already seen its coveted AAA rating cut two notches to AA as part of the same round of ratings reviews.

See below for links to the S&P ratings reports on the big four banks.

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325029741  (ANZ)

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325031356   (Westpac)

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325098061    (CBA)

http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325032617    (NAB)

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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