RETAIL BANKING | Cesar Tordesillas, Australia

Australia’s 4 largest banks downgraded under new S&P criteria

Four of Australia's biggest banks were downgraded by Standard & Poor’s under its revised criteria.


Commonwealth Bank of Australia, Westpac  Banking Corp., Australia & New Zealand Banking Group Ltd. and
National Australia  Bank Ltd. were cut one level to AA- from AA, said the New York-based S&P.

Sydney-based Macquarie Group Ltd., Australia’s largest investment bank, was downgraded two notches, to BBB from A-. Standard Chartered Plc was raised to A+ from A, while Japan’s Nomura Holdings Inc. was kept at BBB+.

S&P  cut the ratings of banks in the U.S. and Europe led by Goldman Sachs Group Inc. as a result of changes to its criteria initiated three years ago, while China’s three biggest lenders got higher grades than most of their largest U.S. rivals. Australia’s top four banks, which control more than 80 percent of lending in the country, rely on credit
markets for about 40 percent of the funds they use for lending.

“Our assessment of the Australian banking industry is underpinned by the country’s conservative and comprehensive regulation, and the banking sector’s very low risk appetite,” S&P said in its note on Macquarie. That’s “partly offset by limited funding support from customer deposits and a material dependence on net external borrowings,” it said.

The ratings methodology, which S&P began revising after the bankruptcy of Lehman Brothers Holdings Inc., now puts more emphasis on the strength of each nation’s banking system. Each country is assigned a grade that serves as a starting point for its banks, explained S&P Managing Director Craig Parmelee.

“We’re emphasizing our system analysis much more significantly than we have in the past,” Parmelee said in a telephone interview. “An important reason why we decided to do that was in recognition of the very high level of systemic risk that was evident in the financial crisis.”

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