S&P maintains upbeat outlook on Aussie banks

George Lekakis

S&P Global yesterday issued an upbeat commentary on the comparative credit outlook for Australian banks, indicating that some were more likely candidates for ratings upgrades than other financial institutions in the Asia Pacific region.

In a quarterly review of on financial institutions in the region, S&P said that negative economic trends were more likely to affect the credit ratings of banks in New Zealand, Thailand, Malaysia and Indonesia.

The release of the report came soon after the Reserve Bank of New Zealand raised its official cash rate by 50 basis points to 1.5 per cent.

“Of the 19 banking jurisdictions where we rate banks in Asia-Pacific, we believe that negative economic trends affecting the stand-alone credit profiles of financial institutions are most likely to take hold in Thailand, Malaysia, Indonesia, and New Zealand.

“We note, however, that about 85 per cent of bank lending is by the four major Australian-owned banks. 

“The New Zealand subsidiaries of these banks remain on stable outlook.

“By contrast, even considering the onset of the Ukraine crisis, positive industry risk trends in Australia and Korea may lead to upgrades for some financial institutions in Australia.

“For the positive transition to take root in these two countries, headwinds blunting the economic recovery from COVID-19 and the spillover from the Ukraine conflict need to be well managed.”

Australia’s four major banks – NAB, Westpac and ANZ and Commonwealth Bank – hold global-leading AA- “credit ratings partly due to implicit government support for their businesses”.

While S&P maintains a stable outlook on each of the major bank’s ratings, it has positive stance on a string of regional and mutual banks.

The BBB+ ratings of Bank of Queensland and Bendigo & Adelaide Bank were affirmed in January with positive outlooks.

The BBB ratings of many customer-owned banks including P&N Bank and Teachers Mutual were ascribed positive outlooks by S&P about 12 months ago.

The near-term profitability of most Australian banks is likely to be supported by a wave of mortgage rate rises throughout 2022.

Local banks have been boosting fixed rate offers since January and these are expected to be followed by variable rate hikes in the second half of the year. 

Although S&P retains a stable outlook on the Chinese banking sector, the ratings agency said “the picture was less certain” compared to banks in Australia and Korea.

“We still see potential for improving economic risks affecting banks, over the long term, because of lower growth in systemwide leverage and property prices,” S &P said.

“This scenario is clouded by economic risks in coming months, however. 

“These risks include continuing volatility affecting the property development sector, risks associated with COVID-19, and now the spillover risks from the Ukraine crisis.”