Moody’s cuts Washington Federal

Moody’s Investors Service said it downgraded Washington Federal Inc.’s (WaFD) local-currency issuer rating to Baa2 from Baa1 and its local-currency non-cumulative preferred stock rating to Ba1 (hyb) from Baa3 (hyb).

“Moody's said the downgrade of WaFd's ratings reflects the growth of its already large commercial real estate (CRE) concentration, including its sizable construction portfolio, and its increased use of market funds. At 31 December 2022, CRE, including construction, was 4.7 times WaFd's tangible common equity on a Moody's-adjusted basis (TCE), up from 4.2 times a year earlier.

“Construction alone was 1.4 times TCE at Dec. 31, 2022, up from 1.3 times a year earlier, and is one of the highest construction concentrations for rated US banks. Moody's considers the bank's CRE and construction concentrations to be potential areas of credit risk in a real estate downturn, notwithstanding WaFd's exemplary asset quality history and a low average portfolio loan-to-value ratio of around 50%,” Moody’s said in a press release.

The outlook remains negative.

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