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Moody’s Cuts Ratings on Australia’s Big Banks on Housing Concern

Moody’s cut ANZ, CBA, NAB and Westpac by one notch from Aa3 to Aa2.Moody’s, a USA firm that advises investors, cut its long-term measure of their creditworthiness from “AAA” (the highest rating) to “AA” (the second highest) on Monday night.It reaffirmed their short-term ratings.If Australia’s sovereign rating, which is already on a negative outlook, came under pressure, that would have an impact on bank ratings.”The resilience of household balance sheets and consequently bank portfolios to a serious economic downturn has not been tested at these levels of private sector indebtedness”, Moody’s said. Are they anxious about house prices?Over 60 percent of the Australian banking system’s loan book is in residential property, almost 20 percentage points more than second-placed Norway and more than double the ratio in the United States, Bloomberg said, citing data from the International Monetary Fund.A credit ratings downgrade of Australia’s biggest banks by Moody’s Investor Service is not expected to raise their funding costs because the new rating is in line with other ratings agencies, banking analysts said. Their share prices and the Australian dollar fell on the news.Banks are carrying an arsenal of cash, as required now by regulators, in preparedness for any downturn in the economy or problems in the housing market but Moody’s indicates it is not sure whether it will be enough.Credit rating agency Moody’s has downgraded a dozen Australian banks, including the big four, citing increased risks in the nation’s increasingly indebted households.Moody’s also downgraded the New Zealand subsidiaries of the Australian banks in line with their parents. It pushed Bendigo and Adelaide Bank and Newcastle Permanent Building Society from AAA to AA, and Heritage Bank, ME bank, QT Mutual, Teachers Mutual, Victoria Teachers Mutual and Credit Union from AAA to BAA.The downgrades come at a time of declining wholesale interest rates in the New Zealand wholesale money market, which has seen the five year swap rate drop to 2.68 per cent from 3.07 per cent at the start or the year.