Moody's downgrades outlook for ANZ, CBA and Westpac ratings

Ratings agency Moody's announced late on Monday it had downgraded the outlooks for the Aa1 credit ratings held by ANZ, Commonwealth Bank of Australia and Westpac Banking Group to negative because of the likely impact of the global economic downturn on the number and size of their bad loans. "The negative outlook reflects the potential for the deepening global economic downturn to have a protracted impact on the banks' asset quality and earnings," Moody's senior vice president in Sydney Patrick Winsbury said in a statement. "All three banks continue to have strong credit profiles and benefit from a very high level of support from the Australian government," Winsbury said. "Consequently, even in a severe downside scenario we would expect Australia's major banks to remain solidly positioned within the Aa rating band." Moody's revised National Australia Bank Aa1 rating to negative last August. NAB owns BNZ, ANZ owns ANZ-National and CBA owns ASB. Moody's said the banks had all reported increased bad loans and the ratings agency was forecasting the Australian economy would enter a recession this year. All four Australian banks were exposed to the relatively more stressed New Zealand economy, Moody's said. But they were better placed than other banks globally because the Australian recession was unlikely to be as deep or as long as other industrialised economies. The banks were also only lightly exposed to "toxic assets" and corporate debt was well contained,Moody's said. "The banks have not been engaged in subprime mortgage lending; collateral cover is high, and there is no over-supply in the Australian housing market," Moody's said. "Furthermore, the banks have raised capital materially since the beginning of the crisis, providing an improved buffer against loan losses and earnings decline."