Global ratings agency Moody’s has downgraded the big four banks and eight other institutions over fears about the housing market.
Moody’s cut ANZ, CBA, NAB and Westpac by one notch from Aa3 to Aa2.
Bendigo and Adelaide Bank and Newcastle Permanent Building Society went from A3 to A2 while Heritage Bank, Members Equity, QT Mutual, Teachers Mutual, Victoria Teachers Mutual and Credit Union went from A3 to Baa1.
Moody’s action comes a month after rival agency S&P Global downgraded almost all Australian banks over fears of “a sharp correction in property prices”.
Moody’s said while it did not expect a sharp downturn in housing as its key scenario, it could not ignore the risk that high levels of debt and the rapid credit expansion could pose down the track.
“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 Moody’s statement said.
The agency worries that while Australians have been taking on record amounts of debt, wages have not increased, while underemployment has.
It also did not like “the rising prevalence of interest-only and investment loans” which it believed were indicators of rising risks.
Banks are carrying an arsenal of cash, as required now by regulators, in preparedness for any downturn in the economy or problems in the housing market but Moody’s indicates it is not sure whether it will be enough.
“The resilience of household balance sheets and, consequently, bank portfolios to a serious economic downturn has not been tested at these levels of private-sector indebtedness,” it said.
Moody’s has also rerated Australia’s economic profile from “very strong” to “strong”, driven by concerns over the household sector, and the country’s debt-to-GDP level was also a factor.