Don’t expect the downgrade by Moody’s of Australia’s four largest banks to have any impact.
Moody’s cut their credit rating cut one notch to Aa2 due to their reliance on overseas debt markets.
But that reliance is actually less than it was three years ago before the GFC
The cut from Aa1 to Moody’s third-highest grade “reflects our view of the Australian banking system’s structural sensitivity to conditions in wholesale funding markets,” Patrick Winsbury, a senior vice president at Moody’s in Sydney, said in a statement issued yesterday.
The move still leaves the big four banks in the most exclusive group in international banking, the 14 lenders in the world with a AA rating or better.
Rabobank is the only bank with a AAA rating.
Bank shares all lost ground on the news. For the day, Commonwealth Bank closed down 9 cents at $51.80, Westpac lost 2 cents to $22.81, but the NAB added 2 cents to $26.93 while ANZ was up 20 cents at $22.69.
Moody’s move brings its rating on the lenders in line with Standard & Poor’s ratings, so no change really in the cost of funding.
Moody’s Patrick Winsbury said in the statement the big four banks have “relatively high levels of wholesale funding — at about 40 percent of liabilities on average.”
“The global financial crisis has underlined the speed with which shifts in investor confidence can impact bank funding.”
"While the major banks have reduced their sensitivity to disruptions in the wholesale funding markets, the Australian financial sector’s long-term, underlying reliance on offshore debt remains in place; and which Moody’s believes is better reflected at the Aa2 rating level," according to Mr Winsbury.
Mr Winsbury said the banks have relatively high levels of wholesale funding – at about 40% of liabilities on average – which, along with the global financial crisis, ‘‘has underlined the speed with which shifts in investor confidence can impact bank funding."
Moody’s also lowered the bank’s subordinated debt – which ranks such lenders below others – rating to Aa3 from Aa2 while it cut its financial strength ratings of the four major banks to B- from B.
The credit ratings agency said the banks had already moved to reduce their dependence on wholesale funding markets by diversifying their investor bases and increasing their liquid assets.
According to Bloomberg, the ANZ said May 3 that short-term wholesale funding accounted for 11% of total financing as of March 31, down from 14% a year earlier, helped by higher deposit growth.
Westpac said May 4 that lending rose $9.6 billion and customer deposits rose $17.9 billion in the year to March 31, meaning the nation’s second-largest bank was able to fund its growth with deposits.
And the Commonwealth Bank said May 11 that asset growth in the March quarter was fully funded by deposits.
