Elevated household debt is behind Moody’s downgrade of 12 Australian banks today.
In Moody’s view, elevated risks within the household sector heighten the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years.
In Moody’s assessment, risks associated with the housing market have risen sharply in recent years. Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness”
These include ANZ, CBA NAB and Westpac as well as Bendigo and Adelaide Bank, Heritage Bank, ME Bank, Newcastle Permanent, QT Mutual, Teachers Mutual, Victoria Teachers Mutual; and Credit Union Australia.
The four majors had their longer-term ratings cut one notch from Aa3 to Aa2 and their baseline credit assumptions trimmed from A1 to a2.
Moody’s downgraded Bendigo and Adelaide bank’s long-term rating from A3 to to A2, but Bank of Queensland and Suncorp were unchanged at A3 and A1 respectively.
ANZ confirmed the downgrade, saying
“Along with the other major banks, ANZ’s senior unsecured credit rating has been lowered by one notch from Aa2 to Aa3. Following this action, Moody’s has also restored the ratings outlook for the four major Australian banks to Stable from Negative”.
There was no change to ANZ’s short term rating which remains at P1.
The full lists of revised ANZ ratings are:
• Senior debt: downgraded from Aa2 (Negative) to Aa3 (Stable)
• Subordinated debt: downgraded from A3 to Baa1
• Hybrid debt: downgraded from Baa1 to Baa2
The ratings are predicated on the assumption that Government support will be available if needed.
These are relatively minor changes which are unlikely to impact funding costs that much, but the trajectory and underlying rationale are much more significant.