Australia’s big four banks had their credit ratings cut by a Standard & Poor’s as a result of major changes in the criteria it uses to assess risk.
The ANZ, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac were each cut one notch to AA minus (AA-), the fourth highest credit rating on S&P’s scale.
Macquarie Group Ltd was cut by two levels to BBB, the ninth highest grade. Standard Chartered Plc’s rating was increased one level to A plus, the fifth highest rating.
The ratings on the big four banks NZ operations were also cut to AA minus by S&P.
The Big Four will still be among the most creditworthy in the world and the cut shouldn’t cause a rise in funding costs because many other banks are having their ratings lowered around the world under the new system.
And besides, Moody’s still has our banks on an average rating of AA.
By way of comparison, the highest rated bank in the US is Well Fargo with an A rating.
The S&P cuts came a couple of days after the ratings group revealed the first of 700 re-ratings for banks around the world under the group’s new way of assessing risk.
On Tuesday of this week it cut the ratings on some of the biggest banks in the US, UK and Europe, with Rabobank of Holland losing its AAA rating that had set it apart from its competitors.
S&P said the changes were part of a process of "applying its new ratings criteria for banks".
The ratings agency said that it had adjusted ratings on 37 of the world’s largest financial institutions, including major US banks like Bank of America, Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase and Morgan Stanley.
In all the ratings of 15 major global banks were cut this week.The ratings of 20 banks were left unchanged and only two banks saw an upgrade.
Ratings for top British banks like Barclays, HSBC, Lloyds and the Royal Bank of Scotland (both substantially owned by the UK government) were also downgraded.
Ratings for other European banks including Credit Suisse and Deutsche Bank were unchanged, as were the ratings on BNP Paribas and Credit Agricole SA.
The other Swiss giant UBS had its rating cut.
The upgrades were two Chinese banks: Bank of China and China Construction Bank, both from A minus to a single A.
In a statement issued early Friday morning, S&P said Australian banks have cut their reliance on global debt markets as they obtain more funds from Australian households, which are saving at about the highest rate in a quarter-century (currently around 10%, and forecast to continue at that level into 2013).
The ratings group said that because of its operations outside the country, Macquarie has a weaker risk score than institutions with more domestic business, such as the big four. (which do have significant investments in NZ).
The ratings methodology, which S&P began revising in January of this year, after the bankruptcy of Lehman Brothers in September, 2008, now puts more emphasis on the strength of each nation’s banking system.
Each country is assigned a grade that serves as a starting point for its banks, under the new S&P system.
other local banks had their ratings cut (They are subsidiaries off larger offshore parents).
The rating of the local arm of Dutch bank, ING, ING Australia, was trimmed to A from A plus.
The parent was left at A (stable). ING Bank and ING’s Belgian banks were left steady at A plus (Stable)
The local arm of JP Morgan (JP Morgan Australia), saw its rating cut two notches to A plus (stable) from AA – (stable), a big cut.
But the US parent was cut by one notch to A (stable) from A plus (stable).
In Asia, the rating on Singapore bank DBS Bank Ltd was left unchanged at AA minus.
Two other Singapore banks, Overseas-Chinese Banking Corp Ltd and United Overseas Bank were each raised by one level to AA minus.
In Japan, Nomura Holdings Inc was left unchanged at BBB plus and Sumitomo Trust & Banking Co Ltd was also left unchanged, at A plus. Resona Bank Ltd was left unchanged at A.
The Bank of East Asia Ltd was raised one level to A.
The criteria are also intended to make better comparisons of banks around the world by applying consistent measurements of bank capital, S&P officials said last month in an earlier update on the process.
Yesterday Moody’s Investors Service maintained a stable outlook for the Australian banking system, but said it still saw significant challenges for the sector, including the impact of the European sovereign crisis.
Moody’s said the Australian banking system is rated one of the highest in the world, with a weighted average rating of Aa2.
"Australia’s banks have built sizeable capital buffers to absorb possible weakness in asset quality, and they have a good measure of flexibility to deal with the challenging conditions in the international wholesale funding markets," according to a statement from Patrick Winsbury, a Moody’s senior vice president.
He said the strength of Australia’s banks partly stems from broader economic robustness, thanks in part to a mini
