Australian bank stocks got a boost on Friday ahead of the March interim reporting period early next month for Westpac, the ANZ and the NAB.
Ratings agency Fitch affirmed its double A ratings for Australia’s big four banks, reflecting their dominant market position and strong profitability.
The news puts Moody’s on the spot as that firm has the ratings under review for possible downgrade.
In February, Moody’s placed Australia’s top banks on review for possible downgrade due to their reliance on overseas wholesale funding markets, which have been prone to sudden shifts in recent years.
While a concern for Fitch, that firm didn’t think it significant enough to cut the ratings, leaving Moody’s out on a limb.
Fitch said on Friday the outlooks for Commonwealth Bank of Australia Ltd, National Australia Bank Ltd and Westpac banking Corporation would remain at `stable’ and would remain at `positive’ for ANZ Banking Group Ltd.
"The ratings reflect the major Australian banks’ dominant market position in their home markets, strong profitability, low impaired asset levels and solid and improving liquidity and capital positions," Fitch said.
The ratings also factor in "a reliance on wholesale funding and the potential for asset quality deterioration due to high Australian household leverage".
Fitch said the Australian banking system’s dependence on short-term wholesale funding, particularly from offshore markets, remained an issue.
While banks had reduced dependence on short-term funding through deposit growth and increased long-term debt issuance, the shift in the funding mix was modest to date.
"Despite improvements, a prolonged dislocation of global wholesale funding markets may lead to rating downgrades," Fitch said.
"In addition, high leverage leaves Australian households susceptible to negative economic shocks, such as a significant downturn in China."
Fitch said a ratings upgrade from AA for CBA, NAB and Westpac was unlikely.
The agency said it would consider upgrading ANZ from AA- if the bank implemented its Asian strategy prudently.
The ratings news is in contrast to the situation in the US where Bank of America reported poor first quarter figures on Friday that concerned the market with big costs in its mortgage business.
JPMorgan Chase was able to lift profit despite a fall in revenue because of write-backs of previous loan loss provisions.
And six small and medium local US banks were shut on Friday night across the country by regulators. That takes the closures so far this year to 34.
Nab shares fell 28c to $26.19 on Friday, Westpac was down 12c at $24.80 and the ANZ was down 40c at $23.61. CBA shares were down 45c at $52.22.
The news of the Fitch decision will help local sentiment with analysts forecasting solid results for the three reporting banks on May 4 and 5.
Australian shares will open with small gains later today after the futures market closed up 18 points on Saturday morning.
The ASX200 index ended 30.6 points lower, or 0.6%, at 4,853.6 points on Friday and the All Ordinaries index fell 31.4 points, or 0.6%, to 4,941 points.
For the week, the ASX200 shares were off about 1.8%, the first fall in four weeks.
The Australian dollar was stronger overnight Friday, closing at buying 105.68 US cents, 73.2 euro cents, 64.7 pence and 87.9 yen.
In the US shares closed higher on Friday, but the market will be tested this week when 20% of the S&P 500 companies report their quarterly results.
The S&P 500 fell for a second straight week.
The Dow Jones industrial average added 56.68 points, or 0.46%, to 12,341.83. The Standard & Poor’s 500 Index rose 5.16 points, or 0.39%, to 1,319.68. The Nasdaq Composite Index added 4.43 points, or 0.16%, to 2,764.65.
For the week the Dow fell 0.3% while the S&P 500 and the Nasdaq each lost 0.6%.
Disappointing results from Google and Indian tech services giant Infosys weighed on technology shares, while financials were pressured by Bank of America’s poor results.
Consumer price inflation remained contained in March while industrial production increased. A separate survey showed improvement in consumer sentiment in April.
Investors had a wary eye on Europe where concerns about Greece’s financial strength continued to evolve with suggestions of a structured restructure of its debt being floated by the German government.
Finnish national elections on Sunday could have a dramatic impact on the euorzone financial problems if a conservative party opposed to the bailouts, makes big gains, as polls suggest it will.
With a Triple A credit rating, Finland’s support is needed to maintain the European bailouts of Ireland, Greece and soon, Portugal.
Without it, would require more money from the likes of Germany and France, where opposition is rising as well.
Moody’s downgrading of Ireland on Friday night didn’t help sentiment as well.
In Europe, the Stoxx 600 Index slid 1.4% last week on concerns about the level of support for bailouts and reform.
German’s DAX rose 0.4% on Friday, but still ended down half a per cent for the week.
London’s FTSE 100 lost 1%, the Athens market fell 3.3%
In Asia, The MSCI Asia Pacific Index fell 0.5% on Friday and fell 0.6% for the week.
Tokyo’s Nikkei fell 0.7%. Australia’s S&P/ASX 200 Index was down 0.7% and New Zealand’s NZX 50 Index slipped 0.1%. South Korea&rsquo
