Moody's downgrade of Australian banks won't raise funding costs - analyst

Key Points
  • Moody's downgraded largest Australian banks to a long-term credit rating of Aa3 from Aa2
  • Ratings firm cited high household debt levels
National Australia Bank
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A credit ratings downgrade of Australia's biggest banks by Moody's Investor Service is not
expected to raise their funding costs because the new rating is in line with other ratings agencies, Deutsche Bank analysts said.

Moody's on Monday downgraded the four largest Australian banks to a long-term credit rating of Aa3 from Aa2, citing risks from high household debt levels after sharp property price

The new rating is in line with the long-term AA- credit rating that Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group
Ltd and National Australia Bank Ltd (NAB) have from Standard & Poor's and Fitch Ratings.

"Given this downgrade merely brings the major banks' credit ratings under Moody's to the equivalent notches under S&P and Fitch, we expect no impact on funding costs," Deutsche Bank
analysts said in a note to clients published on Monday.

However, the analysts said there was still a risk that S&P would downgrade the major banks due to a sovereign ratings downgrade or a reduction in government support, which could lift long-term funding costs by 10 basis points. S&P revised its outlook on the major banks to negative last July.

Both houses of Australian parliament on Monday voted in favor of a 6 basis point levy on certain liabilities of the four biggest banks and Macquarie Group Ltd in a measure meant to help return the federal budget to a surplus by 2021.

The banks have criticized the tax as unfair and argued that foreign rivals should be included to level the playing field.

A Senate committee on Monday recommended the bank tax should be reviewed in two years and possibly waived in times of financial distress, but Treasurer Scott Morrison on Tuesday
rejected those arguments.

There's no need to do any of those things," he told the Australian Broadcasting Corp.

Moody's also downgraded the New Zealand subsidiaries of the Australian banks in line with their parents.

The banks, with the exception of NAB, have acknowledged the ratings downgrade but have not commented any further. NAB has not yet provided any comment.