Ratings boost for Bendigo and Adelaide Bank as it joins the 'A' team

Second-tier lender Bendigo and Adelaide Bank should be able to source wholesale funding at better pricing after its credit rating was upgraded to from BBB+ to A– by Standard & Poor’s.

The rating upgrade indicates S&P believes the bank has a strong capacity to meet its financial commitments and is less susceptible to changes in circumstances and economic conditions.

The rating upgrade came two days before the bank announced it would pass on the full December rate cut to borrowers, reducing its variable rate to 7.3%.

However, borrowers will only see the benefit of lower mortgage repayments after Christmas, with the new rate kicking in on December 30, three and a half weeks after the RBA’s December 6 announcement.

In passing on the rate cut, managing director Mike Hirst sought to highlight the “misconception that there is an exact correlation between the official cash rate and home loan funding costs”.

“Movements in the Reserve Bank overnight cash rate actually have little bearing on the cost of the funds we require to support the borrowing needs of our customers and partners.

“In fact, while the Reserve Bank has been lowering the overnight cash rate, the cost of funding our lending has been increasing, largely because of the consequences of events in Europe,” Hirst says.

Its ratings upgrade comes as fellow regional Bank of Queensland – the first lender to pass on the December RBA rate cut – had its rating downgraded one notch from BBB+ to BBB.

BBB is the lowest investment grade rating indicates adequate capacity to meet financial commitments, but where adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet financial commitments.

The new Bank of Queensland variable rate of 7.36% kicks in on Friday, December 16.

S&P’s decision to raise Bendigo and Adelaide Bank’s long-term rating from BBB+ to A– means the bank is now rated ‘A’ by all three of the world’s leading credit rating agencies, the others being Fitch and Moody’s.

Moody’s ‘A’ rating predates the 2007 merger of Bendigo and Adelaide banks. Fitch upgraded the bank in May 2011.

The S&P upgrade has also been applied to Bendigo and Adelaide Bank’s wholly owned subsidiary Rural Bank, which gains an ‘A–‘rating with a stable outlook.

Hirst says the bank identified two years ago the need to achieve an A rating in order to open up new funding markets.

“Funding is obviously challenging all banks globally, but the upgrade will certainly enable us to access funding otherwise denied to us. Importantly, it will also enable us to service supporters who were precluded from banking with us because we were not A rated.

“One thing it will not do, though, is change our fundamental approach to risk and management. Retail funding remains our key focus because of the strong relationships it brings with our customers, partners and communities. Their support and advocacy is a key to our continued success.”

The upgrade for the regional bank comes following S&P downgrading the ratings of Australia’s Big Four banks to AA- as part of a global bank re-rating exercise.

Hirst highlighted that Bendigo and Adelaide Bank is one of the few banks in the world to have been upgraded in the current difficult economic environment.

“That brings added lustre to our achievement, but it sounds a note of caution at the same time.

“We are obviously pleased to deliver on our stated aim to achieve an A rating from all credit agencies, but we are under no illusions about just how tough the economic environment is.

“Maintaining our hard-won position will require continued focus.”

Bendigo and Adelaide Bank has 1.4 million customers and more than $50 billion in assets held by its diversified businesses.

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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