The latest assessment from S&P is finely balanced, on one hand calling out the elevated risks emanating from rising household debt and risks of a property correction, whilst on the other suggesting that recent regulatory intervention should help to manage the adjustment.
But overall, risks are higher and their revised credit profiles reflect this with more than 20 entities downgraded. Whilst the majors rating has not changed – reflecting the implicit government guarantee that their “too-big-to-fail” status gives them, and Suncorp remains at its current A+/Stable rating; both Bendgio Bank and Bank of Queensland took a downgrade to BBB+/Stable.
The consequence for these regionals is that funding costs just went up (and probably by more than a 6 basis point tax on the majors would have given in relative benefit). They have high customer deposits, but again the regional bank playing field is tilting against them when it comes to long term funding.
The majors would be downgraded if Australia is:
Our outlooks on the long-term issuer credit ratings on the four major Australian banks remain negative reflecting our view that pressure remains on the Australian government’s likely support for these banks. We expect to lower our issuer credit ratings on these major banks and their core subsidiaries if we lowered our long-term local currency sovereign rating on the Commonwealth of Australia (AAA/Negative/A-1+) or if we reclassified our assessment of the Australian government’s supportiveness toward systemically important private sector banks to supportive from highly supportive.
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