Big four downgraded as S&P changes methodology December 2, 2011 - 6:07AM
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.
Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corp were each cut one notch to AA minus, 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. Advertisement: Story continues below
Household savings
The nation's four “pillar lenders,” so named for a law that prevents them from buying each other, were among global lenders that suffered when credit markets froze after Lehman went bankrupt in September 2008.
Australian banks have reduced 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.
Because of its operations outside the country, Macquarie has a weaker risk score than institutions with more domestic business, S&P said in a statement.
Australia’s lenders including Commonwealth Bank, Westpac, ANZ Bank and National Australia may need to sell about A$144 billion ($147 billion) of bonds in the 12 months ending in June 2012, according to a July research report from Deutsche Bank AG.
New emphasis
The ratings methodology, which S&P began revising after the bankruptcy of Lehman Brothers Holdings Inc., 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, S&P Managing Director Craig Parmelee said Nov. 29.
“We're emphasizing our system analysis much more significantly than we have in the past,” Parmelee said in a telephone interview. “An important reason why we decided to do that was in recognition of the very high level of systemic risk that was evident in the financial crisis.”
The rating on Singapore bank DBS Bank Ltd was left unchanged at AA minus following the revision. 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.
Earlier this week, S&P reduced the credit rating on 15 big banks, mostly in Europe and the United States, as part of its sweeping overhaul of its ratings criteria.
The announcement by S&P comes at a time when markets for bank debt are on edge because of the European debt crisis. It could increase already-soaring funding costs for some banks.
But S&P began warning financial markets more than a year ago that it was revising its ratings.
The overhaul is part of a broad, multi-year drive by the agency to improve its products and repair its reputation. S&P badly tarnished its image by wrongly putting triple-A ratings on securities backed by subprime mortgages. The agency is owned by the McGraw-Hill Companies Inc.
S&P officials expect the new system to allow the agency to more quickly change ratings when it sees new threats to bank funding or sees governments become less willing to bail out creditors.
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.
