S&P Global Ratings has just come out with a significant comment on “some weaknesses in the effectiveness of regulation in the banking sector, and the conduct, governance, and risk appetite shown by Australian banks”. Finally!!
The negative rating outlooks on systemically-important Australian banks reflect pressures on the Australian sovereign creditworthiness (Commonwealth of Australia; AAA/Negative/A-1+) and a possible tempering of our current highly supportive opinion concerning the Australian government’s tendency to support banks.
During the past quarter, we revised our economic risk trend for the Australian banking industry to positive from stable. This reflects our expectation that the trend of an orderly unwinding of economic imbalances, including for high property prices and private sector indebtedness, should continue for at least the next year.
By contrast, we recently negatively revised our view of the Australian banking sector’s industry risk. In our view, developments over the past two years in the Australian banking sector, including information coming out of hearings at the ongoing Royal Commission, highlight some weaknesses in the effectiveness of regulation in the banking sector, and the conduct, governance, and risk appetite shown by Australian banks.
