Major banks play down S&P ratings downgrade

Australia’s four biggest banks have played down a decision by Standard & Poor’s to downgrade their long term credit rating as part of a global re-rating of the world’s 37 largest banks. 

AA- is the lower limit of Standard & Poor’s “high-grade” category, indicating a “very strong capacity to meet financial commitments”. 

The Big Four banks join 15 banks in Europe and the United States that have been downgraded under the revised criteria.

A ratings downgrade could potentially increase the cost of borrowing money, making it more likely that banks won’t pass on future interest rate cuts to consumers.

The new criteria place heightened emphasis on economic risk and industry risk in setting the starting point or “anchor” in rating a financial institution with the aim of increasing transparency.  The anchor is then adjusted for bank-specific factors, such as capitalisation, management and risk position. Lastly the ratings are adjusted for potential government support and corporate group support.

Putting the downgrades into perspective, Australia’s Big Four banks are still rated more highly than top-rated bank in the US – Wells Fargo, which has an A+ rating.

Westpac acknowledged that its rating had been lowered by one notch, but said it “remains one of a small number of banks worldwide within the Rating Agency’s AA categories”.

Commenting on ANZ’s rating downgrade, chief financial officer Peter Marriott also highlighted that it “remains one of a select group of banks globally that have a AA category rating under S&P’s new bank ratings criteria”.

“We continue to be regarded as amongst the strongest banks globally and with a return to the rating we held until the beginning of 2007, we are one of the few banks in the world to have come out of the global financial crisis with the same rating as we went into it with,” he says.

Commonwealth Bank group treasurer Lyn Cobley says the bank does not expect the downgrade to have any material impact on its funding plans or expected pricing of new debt issuance.

NAB chief executive Cameron Clyne says NAB is a “highly rated bank by global standards, is well capitalised, has strong funding and liquidity positions, and remains well-placed to continue to support customers”.