Thu, May 19, 2011 - Page 10 News List

Australia’s big four banks face debt downgrades

WELL-FLAGGED:The Moody’s downgrade came as no surprise as the banks were put on watch earlier this year, and S&P and Fitch already downgraded them


Moody’s yesterday downgraded the debt ratings of Australia’s big four banks to Aa2, citing their dependence on volatile global lending markets.

The move was well-flagged, with Moody’s placing the banks on a negative ratings watch in February, and brings them in line with the other two major ratings agencies, Standard & Poor’s and Fitch, analysts said.

The downgrade was from Aa1 and affects the country’s big lenders — Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, Westpac Banking Corp and National Australia Bank Ltd.

“The downgrade reflects our view of the Australian banking system’s structural sensitivity to conditions in wholesale funding markets,” said Patrick Winsbury, senior vice president based in Moody’s Sydney office.

“Australia’s major banks have relatively high levels of wholesale funding and the global financial crisis has underlined the speed with which shifts in investor confidence can impact bank funding.

“While the major banks have reduced their sensitivity to disruptions in the wholesale funding markets, the Australian financial sector’s long-term, underlying reliance on offshore debt remains in place,” he added. “Moody’s believes this is better reflected at the Aa2 rating level.”

However, Moody’s said their outlook was stable, meaning further cuts to the banks’ ratings were not likely in the short term.

Shares of all four banks declined from their intra-day highs after the decision, but National Australia Bank and ANZ still managed to finish up, while Commonwealth and Westpac were only marginally in the red.

CLSA analyst Brian Johnson said the move was unlikely to have much of an impact on the bank’s funding costs.

“[The move] was as expected, and the difference between Aa1 and Aa2 is not that different. The important thing is that they’ve still got Aa ratings,” he told Dow Jones Newswires. “It does have an adverse impact, but I’d suggest that it’s minuscule.”

Moody’s affirmed Australia’s Aaa rating earlier this month, citing very high economic resiliency, very high government financial strength and very low susceptibility to event risk, but flagged the banking downgrade.

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