Fitch Ratings cut Commonwealth Bank of Australia, Westpac Banking Corp. and National Australia Bank Ltd. by one level, citing their dependence on wholesale funding markets that are “vulnerable to swings of confidence.”
The long-term issuer default rating on the three Australian lenders was cut to AA- from AA, Fitch said in an e-mailed statement today. It also reaffirmed the AA- rating of Australia & New Zealand Banking Group Ltd.
Fitch’s moves follow downgrades by Moody’s Investors Service in May, and Standard & Poor’s in December, and reflect the lenders’ reliance on offshore funding markets. Australia’s so-called four pillar banks, so named for a law that prevents them buying each other, derive about 40 percent of their total funding from wholesale markets.
The downgrades “reflect the weaker funding profile of the major Australian banks relative to similarly rated international peers,” Fitch said in the statement. “Despite some improvement since 2008, all four banks retain a reliance on wholesale funding, particularly from offshore markets.”
The cost of credit-default swaps on the four lenders were little changed after today’s Fitch announcement. The contracts, which typically trade in line with each other, cost 145.5 basis points as of 5:07 p.m. in Sydney, according to Westpac.
While Australia’s biggest banks have cut their reliance on credit markets as local households save at close to the highest rate in a quarter century, debt markets still furnish about 40 percent of the funds they use for lending. About 60 percent of that wholesale funding comes from overseas, Fitch said.
Fitch also said in today’s statement that the use of wholesale markets outside Australia “is managed well by the banks” and the outlook on lenders’ ratings was “stable.” The rating change concludes a review announced on Jan. 30.
“This change in the Fitch rating brings Fitch more in line with S&P and we do not expect this rating change to have any material impact on the Group’s earnings or operations,” Sharna Rhys-Jones, a National Australia Bank spokeswoman, said by e-mail.
E-mails to Westpac and Commonwealth Bank’s press offices weren’t immediately returned.