Moody's scrutinises Australian bank ratings as economy weakens

Thursday 19th February 2009

The credit ratings of Australia's banks are under review at Moody's Investors Service because of the deteriorating economic outlook.

The ratings company said the deteriorating economy means it may have to revise its estimate for growth of around 1% and an unemployment rate below 7%.

"As the outlook for the Australian economy continues to weaken, these metrics may well be breached," Moody's said in a statement from Sydney. It now predicts the Australian economy will contract 0.4% in 2009 while the unemployment rate may reach 7.2% by the third quarter of 2010.

Bank earnings have been eroded by rising bad debt levels and slackening demand for home loans. Westpac Banking Corp. this week posted a 2% drop in first-quarter profit as impairments jumped fivefold to A$800 million. Commonwealth Bank this month said bad debts jumped to about A$1.6 billion in its first half, while ANZ Bank and National Australia Bank have both warned profits may be eroded by impairments.

Australia's four major banks have a Bank Financial Strength rating of B and credit ratings of Aa1, according to Moody's. The credit rating company will 'consider the potential impact on asset quality and earnings and how that may affect Australian bank financial strength ratings," it said.

To be sure, the biggest banks in Australia have taken steps to strengthen their balance sheets in the past six months. They've raised more than A$45 billion selling bonds that come with a government guarantee, luring investors seeking better yields as deposit rates fall.

Moody's plans to release a detail report in early March, it said.

By Jonathan Underhill

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