Aussie bank ratings slip

UPDATED: Aussie parents of New Zealand’s major banks lost a notch from long-term credit ratings overnight.

The historic downgrade by international ratings agency Standard & Poor's largely stems from its new criteria for risk measurement. The biggest impact is that it will increases funding costs for the banks.

S&P cut the long-term ratings on Commonwealth Bank of Australia (which owns ASB), Westpac Banking Corp, National Australia Bank (which owns BNZ) and Australia and New Zealand Banking Group (ANZ) from 'AA' to 'AA-'. The outlook remains stable.

Those banks have taken pride in their strong ratings, which helped shield the Australian and New Zealand economies from the worst of the global financial crisis.

Despite the harsher outlook from S&P, the Australian banks remain among the highest ranked banks in the world.

Last night's downgrade was made as part of a review of banks internationally, in response to the latest global financial markets volatility, and the new ratings methods - intended to address imbalances and make the ratings more consistent between countries.

A wave of credit rating downgrades on banks started earlier this week when S&P cut rates on some of the largest financial institutions in the US and Europe, including Goldman Sachs.

China's three largest banks are now rated above most of their largest US rivals.

BNZ treasurer Tim Main said the bank’s new AA- rating still reflected “strong ability” to repay principal and interest on time.

“BNZ retains an AA- long-term credit rating which ensures, subject to market conditions, our good access to offshore funding and a strong capacity to meet our financial commitments, he said.”

Meanwhile, BNZ's short-term rating remained unchanged at A1+, the highest S&P ascribes.

Dr David Tripe, who heads Massey University's centre for banking studies, said while the shift from AA to AA- wasn't enormous, it was a shift nonetheless and should not be downplayed.

"It isn't quite no change, they are different credit ratings."

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I transfered over around $4million in mortgages to Kiwibank from ASB. Kiwibank is now much safer.

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Rabobank lost its AAA rating as well.

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1 more reason for us to be cheerful about the economy

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The paper being considered by the RBNZ on how they would deal with a banking crisis in terms of freezing transactional accounts to a level that reflected the estimated loss is a worry and whilst probably a sign of prudent oversight remains a worry. The fact that the govt guarantee is also being terminated may just be a coincidence!

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