Moody’s Downgrades the Big Four Banks

Credit rating agency Moody’s has downgraded 12 Australian banks, including the big four, over concerns about increasing household debts.

ANZ, Commonwealth Bank, NAB and Westpac has been cut from Aa2 long-term rating to Aa3, while Newcastle Permanent Building Society and Bendigo and Adelaide Bank went from A2 to A3.

The group said “risks associated with the housing market have risen sharply in recent years”, leading to “very high and rising household indebtedness” that increases “the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years.”

The group also changed its assessment of the country from “Very Strong –“ to “Strong +”.

“Whilst mortgage affordability for most borrowers remains good at current interest rates, the reduction in the savings rate, the rise in household leverage and the rising prevalence of interest-only and investment loans are all indicators of rising risks.”

The decision followed Standard and Poor’s downgrading of 23 Australian financial institutions in May, which left the headline ratings for the big four banks untouched.