Top 4 Aussie banks targeted for ratings downgrade

Soaring loan costs are about to cost Australia’s “Big Four Banks” dearly.

Global ratings agency Fitch Ratings might downgrade Australia's four major banks that have turned to more expensive offshore funding to boost their balance sheets in the face of macroeconomic uncertainty. Any downgrade, however, would be most likely be limited to one notch.

Fitch said its negative outlook on Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corporation was based on their weaker funding profiles than similarly rated peers.

The “Big Four Banks” intend to raise about US$100 billion this year, mostly from the United States and Europe, to help meet a shortfall between deposits and lending.

Recent covered bond sales by the banks have come at almost twice the margins of unsecured debt raising last year.

Fitch's move to review Australian bank ratings comes after Standard & Poor's Ratings Services cut the ratings on five Australian banks last month as a result of major changes in the criteria it uses to assess risk. The banks were each cut one notch to AA minus, the fourth highest credit rating on S&P's scale.

"If a downgrade is going to lead to the same level (as S&P) it is not really going to spook investors. I would not be overly concerned at this stage. My focus will be on the bank reporting season and what they say about bad debts etc," said David Cassidy, chief equities strategist at UBS.

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