The ratings of 61 Asia-Pacific instruments have been downgraded by the US research company following a review of its ratings criteria for bank hybrids.
Standard & Poor’s said the ratings for the remaining 60 bank hybrids were maintained.
It said the “one notch wider gap” between the ratings of approximately 50 per cent of Asia-Pacific banks' hybrid capital instruments and the issuer credit ratings of those banks better position these hybrid ratings for the risk of “increased loss absorption given regulatory and market trends”.
Macquarie Group reported revised Standard and Poor’s ratings for three of its hybrids.
Macquarie Income Securities and Macquarie Income Preferred Securities were both downgraded from BBB-, considered to be the lowest investment grade by market participants on the Standard & Poor’s ratings scale, down to BB+.
Macquarie Preferred Memberships Interests were downgraded from BB+ to BB, which specifies the instrument is “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions".
Westpac also experienced downgrades for its hybrids, with hybrid capital instruments issued prior to 1 January by Westpac (Basel II instruments) downgraded from BBB+ to BBB and hybrid capital instruments issued after 1 January 2013 (Basel III instruments) lowered from BBB to BBB-.
NAB's Basell II hybrid instruments were downgraded from BBB+ to BBB, while its Basel III are now rated BBB- instead of BBB as they were previously.
“We now deduct an additional notch for Basel III Tier 1 capital instruments for Asia-Pacific banks because we believe that there is greater potential for coupon non-payment on a going-concern basis when the regulatory capital conservation buffer under Basel III or other regulatory core equity capital buffers apply,” said Standard & Poor’s.
“This factor is a key determinant of rating downgrades of hybrid capital instruments in Asia-Pacific.”
Standard and Poor’s said it plans to publish a list of all instruments affected by the rating actions in coming days.
