January 31, 2012
ANZ Group treasurer Rick Moscati believes early positive signs are emerging in the embattled eurozone, despite the trouble the volatile financial markets are creating for Australian banks through higher funding costs.
The credit ratings of Australia's major banks are again under threat after ratings agency Fitch declared their reliance on wholesale funding to be a major risk in an uncertain global economy.
Fitch last night warned it had placed the top four banks on a "ratings watch negative" with the potential for a one-notch downgrade.
A ratings downgrade would be the third to hit the banks after Moody's and Standard & Poor's last year downgraded the banks by one notch to AA minus.
However, Mr Moscati told The Australian he believed that moves by the banks to pare back exposure to volatile wholesale funding markets had been overlooked.
"We have been reducing our reliance and that has been consisent with our longer-term strategy and how we have been executing that strategy," he said.
"It also fits in with how we have been growing our balance sheet in some areas and not growing it in others. We have been very disciplined with our balance sheet."
Mr Moscati said the Australian banks had been "caught up in a global issue" that had forced up the price of senior unsecured debt and recent issues of covered bonds.
However, he said the European crisis was and the financial markets flow was starting to improve on last year.
"I think there are some slow and constructive moves coming out of Europe," he said. "The case it point would be Italian bond yields - they are coming down - and the provison of liqudity from the ECB into the European banks is a positive. "It's not a solution, but it buys time and while I think there is still a lot of work to do we are at a point where it is more constructive now then it was a year ago."
Fitch has carried out a global review of banks and said while Australian banks were in good shape compared to other AA-rated banks, they were heavily reliant on wholesale funding markets.
The news was announced after the market closed last night, but is not expected to create a major reaction when banks begin trading today.
Mr Moscati said he did not believe the potential downgrade would affect the banks' reputations among credit investors.
"We don't believe it will have an impact," he said. "Most sophisticated investors at the end of the day will make their own judgement and carry out their own credit analysis."
In a report, Fitch said almost half of Australian bank funding was sourced offshore and one-third was considered short-term debt with a maturity of less than a year.
"Australian banks make much greater use of wholesale funds," the report said. "The funding profiles of Australian banks have improved to some extent since the start of the GFC in 2007 and the banks are expected to continue to make efforts to improve them while at the same time having to refinance government-guaranteed debt that was issued during the crisis."
Fitch has the Commonwealth Bank, NAB and Westpac rated AA while ANZ is at AA-minus. It is expected that if a ratings downgrade is ordered, it would centre on CBA, NAB and Westpac.
Fitch director Tim Roche said the ratings agency would meet with the banks before its recommendation was finalised in the next six weeks. "We think the Australian banks stack up against the other AA-rated banks around the world on most measures," Mr Roche said.
A CBA spokesman said the bank was aware Fitch planned to review each of the banks' ratings. "We will wait to see what they come up with at the end of the review period," he said.
NAB last night said it was well-capitalised and strengthening its funding profile.
The major banks have been scaling back their exposure to volatile wholesale funding markets in a bid to cut costs. The nation's two largest banks, CBA and Westpac, have raised $6.6 billion in covered bonds over the past fortnight.
Deutsche Bank analyst David Plank said bond issuance, while expensive for the banks, was attractive to debt investors.
"We have to confess that we have been somewhat surprised by the demand for covered bonds," he said. "We had thought that these bonds would not be seen as attractive relative to the AAA-rated RMBS (residential mortgage-backed securities).
"What has happened is that covered bonds have priced at a much wider spread to swap than we thought would be the case."
Meanwhile, Wayne Swan yesterday refused to back down from pressuring the Australian banks to pass on the full benefits of likely interest rate cuts to Australian homeowners and businesses.
The government was warned in a report in The Australian yesterday that a number of blue-chip business leaders believed that "bank bashing" was creating risks for the Australian economy. "I won't be pulling back from my discussion about the important issues associated with interest rates," he said.
Article by Scott Murdoch From:The Australian