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Aussie banks hit with downgrade

Lachlan Maddock
— 1 minute read

One of the world’s leading ratings houses has downgraded a number of Australian banks off the back of weakening economic activity – and upgrades are unlikely.

Moody’s downgraded all its long-term ratings and assessments on Qudos Bank and changed its outlook to negative from stable. Moody’s will also review for downgrade of all ratings of MyState Bank, and has changed the outlook on ME Bank and IMB to negative from stable. 

“We changed our outlook for the broader Australian banking system to negative in early April, reflecting our view that the economic impact of coronavirus-related disruptions will strain banks’ loan performance,” said Tanya Tang, Moody’s analyst. “Today’s rating actions are prompted by this change in outlook on the broader banking system.”

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Moody’s expects loan defaults to increase, although the final impact will depend on the “breadth and severity” of the disruption as well as the effectiveness of the government’s stimulus measures. Record low-interest rates – as well as increases in loan-loss provisioning and pricing competition – will also hurt the smaller banks, eroding their buffers against smaller losses. 

“Further negative rating pressure could emerge if there is a prolonged economic disruption from the coronavirus, with adverse effects on employment and consequently the banks’ financial fundamentals,” Moody’s wrote in its downgrade. 

“Given the review for downgrade and negative outlooks, upgrades are unlikely.”

On 7 April, Australia’s big four banks were also hit with a historic downgrade of their long-term issuer default rating by Fitch Ratings on the expectation of economic contraction and a rise in unemployment and business insolvency. 

“The negative outlook reflects the major downside risk to Fitch’s economic outlook, which could further weaken WBC’s financial profile below our expectations at its current rating level in the next two years,” Fitch wrote in its downgrade of Westpac.

 

Aussie banks hit with downgrade
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