Coronavirus: Fitch cuts ratings of big four banks amid Covid-19 concerns

Wednesday, 8 April 2020

Ratings agency Fitch has downgraded the ratings it gives the big four Australian banks.

NAB, which owns BNZ, ASB owner CBA, Westpac and ANZ have been downgraded to A+ from AA-, which means a business -  while a low default risk -  is slightly more vulnerable to business or economic shocks.

Fitch has maintained the rating outlook for the major Australian banks as 'negative', reflecting the major downside risk to Fitch's economic outlook in light of the evolving global situation.

It said there were likely to be significant economic consequences for the banks' core markets of Australia and New zealand, caused by the ovid-19 pandemic and the restrictions implemented to stop its spread.

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Banking expert Claire Matthews, of Massey University, said it would mean the New Zealand subsidiaries would be downgraded, too.

The lower a rating, the more expensive it is for the entity to borrow money.

Matthews said she did not expect the increase in borrowing costs for the New Zealand banks to be large.

'While the downgrade is not unexpected in the current economic environment, I have to assume it indicates widespread downgrading of banks around the world, given the relative strength of the Australian banks.'

In a statement to the NZX, Westpac pointed out that Fitch also stated it was well capitalised to withstand the short-term consequences from the pandemic. 'Fitch believes there is still a reasonable buffer at the current mid-point, although capital ratios are likely to be pressured by asset quality deterioration and weakened profitability over the next two years.'