Moody’s acts on 16 Australian banks

Moody's Investors Service said it downgraded the baseline credit assessments (BCAs), long-term ratings and counterparty risk assessments (CRAs) of 12 Australian banks and their affiliates, reflecting elevated risks in the household sector that heighten the sensitivity of the banks' credit profiles to an adverse shock.

These elevated risks were captured in Moody's macro profile for Australia, which was lowered to "strong +" from "very strong --."

At the same time, the agency affirmed the baseline credit assessments, long-term ratings and counterparty risk assessments of another six Australian banks and their affiliates, reflecting the balance sheet buffers and resilience to potential shocks for these banks.

Following these actions, the outlooks of 16 banks are now stable, while two remain negative.

Moody's also downgraded the insurance financial strength rating of one lenders mortgage insurer, and placed the insurance financial strength rating of another on review for downgrade.

Specifically, the long-term ratings of Australia's four major banks, Australia and New Zealand Banking Group Ltd. (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Ltd. (NAB), Westpac Banking Corp., were downgraded to Aa3 from Aa2 and their baseline credit assessments downgraded to a2 from a1, while their short-term ratings were not changed and affirmed at P-1.

The long-term ratings of Newcastle Permanent Building Society and Bendigo and Adelaide Bank Ltd. were downgraded to A3 from A2, with the following banks downgraded to Baa1 from A3: Heritage Bank Ltd., Members Equity Bank Ltd., QT Mutual Bank Ltd., Teachers Mutual Bank Ltd., Victoria Teachers Mutual Bank and Credit Union Australia Ltd.

The banks and their affiliates with affirmed and unchanged ratings: AMP Bank Ltd., Bank of Queensland Ltd., HSBC Bank Australia Ltd., Citigroup Pty Ltd., Suncorp-Metway Ltd. and Macquarie Bank Ltd.

The outlooks for ANZ, CBA, NAB, Westpac and Members Equity Bank were revised to stable from negative.

The outlooks Bendigo and Adelaide Bank, Citigroup Pty, Heritage Bank, Newcastle Permanent Building Society, QT Mutual Bank, Teachers Mutual Bank, Victoria Teachers Mutual Bank and Credit Union Australia, Bank of Queensland, Suncorp-Metway and Macquarie Bank remain stable.

The outlooks for AMP Bank and HSBC Bank Australia remain negative, as a result of the negative outlooks for their parents.

Moody's also downgraded the insurance financial strength rating of Westpac Lenders Mortgage Insurance Ltd. (WLMI) to A1 from Aa3 and revised its outlook to stable from negative. WLMI is a mortgage insurance subsidiary of Westpac. The subsidiary's rating incorporates Moody's assumption of affiliate support from Westpac, and the action reflects the change in the rating and outlook of its parent.

In addition, the agency placed the A3 insurance financial strength rating of Genworth Financial Mortgage Insurance Pty Ltd. on review for downgrade.

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