In its downgrade announcement, Moody's Investors Service said that increased risks in Australia's household sector will "heighten the sensitivity of the banks' credit profiles to an adverse shock".
The long-term ratings of the four major Australian banks have been downgraded to Aa3 from Aa2, said Moody's.
In addition, the major banks' baseline credit assessments (BCAs) have been downgraded to A2 from A1, while their short-term ratings were not changed and affirmed at P-1.
"These elevated risks have been captured in Moody's Macro Profile for Australia, which has been lowered to 'Strong +' from 'Very Strong –'," said Moody's.
The other banks that have been downgraded along with the 'big four' are: Bendigo and Adelaide Bank Limited, Heritage Bank Limited, Members Equity Bank Limited, Newcastle Permanent Building Society, QT Mutual Bank Limited, Teachers Mutual Bank Ltd, Victoria Teachers Mutual Bank and Credit Union Australia Limited.
"Moody's has also downgraded the insurance financial strength rating of Westpac Lenders Mortgage Insurance Limited (WLMI) to A1 from Aa3, and revised its rating outlook to stable from negative," Moody's said.
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