Big Aussie banks get a downgrade

Ratings agency Moody's has downgraded the big four Australian banks on the back of worries around wholesale funding.

Thursday, May 19th 2011, 9:18AM

Moody's Investors Service has downgraded the long-term, senior unsecured debt ratings of Australia's four major banks from Aa1 to Aa2 on the back of wholesale funding worries.

The banks affected are the ANZ, ASB's parent Commonwealth Bank of Australia, Westpac and BNZ's parent National Australia Bank.

The ratings for the banks' subordinated debt were also downgraded to Aa3 from Aa2. In addition, the Bank Financial Strength Ratings (BFSR) of the four majors were downgraded to B- from B.

"The downgrade reflects our view of the Australian banking system's structural sensitivity to conditions in wholesale funding markets", Moody's Senior Vice President Patrick Winsbury said.

"Australia's major banks have relatively high levels of wholesale funding-- at about 40% of liabilities on average -- and the global financial crisis has underlined the speed with which shifts in investor confidence can impact bank funding."

"While the major banks have reduced their sensitivity to disruptions in the wholesale funding markets, the Australian financial sector's long-term, underlying reliance on offshore debt remains in place; and which Moody's believes is better reflected at the Aa2 rating level," says Winsbury.

Moody's said the ratings of the banks' foreign subsidiaries, including New Zealand, remain on review for possible downgrade.

It said there are credit issues specific to those institutions being considered in their reviews, in addition to the parental support factored into their ratings.

"In New Zealand, the review will also consider the sensitivity of the bank subsidiaries to wholesale funding markets and the Reserve Bank of New Zealand's Open Bank Resolution proposals."

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