Sydney - Moody’s Investors Service cut the long-term credit rating of
Australia’s four biggest banks, saying surging home prices, rising household
debt and sluggish wage growth pose a threat to the lenders.
Australia
& New Zealand Banking Group, Commonwealth Bank of Australia, National
Australia Bank. and Westpac Banking, were all downgraded to Aa3 from Aa2,
Moody’s said in a statement released Monday. The ratings outlook for all four
lenders is stable, Moody’s said.
“Risks associated with the housing market have risen sharply
in recent years,” Moody’s said in the statement. While a sharp housing downturn
isn’t its core scenario, “the tail risk represented by increased household
sector indebtedness becomes a material consideration in the context of the very
high ratings assigned to Australian banks,” Moody’s said. The Australian dollar
fell as much as 0.5 percent following the announcement, and was trading at
76.02 US cents at 6:37 p.m. Sydney time.
S&P Global Ratings last month downgraded the credit
ratings of almost all of Australia’s
financial institutions on similar concerns about the risks of a property market
downturn. However, it spared the four biggest banks on the expectation of
government support in the event of a crisis.
Read also: Moody's downgrades SA's 5 largest banks and more
Residential mortgages account for more than 60 percent of
the Australian banks’ loan books. The banks have recently tightened lending
standards under pressure from regulators. The combination of soaring house
prices and stagnant wage growth has pushed the ratio of household debt to disposable
income to 189 percent one of the highest levels in the world.
“The resilience of household balance sheets and,
consequently, bank portfolios to a serious economic downturn has not been
tested at these levels of private sector indebtedness,” Moody’s said in the
statement.
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