Moody's lowers bank ratings, prompting home loan warning

David Tripe, of Massey University, says there will be an impact on interest rates, although it may be small.
CRAIG SIMCOX/FAIRFAX NZ

David Tripe, of Massey University, says there will be an impact on interest rates, although it may be small.

Homeowners with mortgages are being warned a credit rating downgrade for the big four banks could be bad news for their repayments.

Credit rating agency Moody's has downgraded a dozen Australian banks, including the big four, citing increased risks in the nation's increasingly indebted households.

Moody's stripped the big four banks - the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (ASB in New Zealand), National Australia Bank (BNZ in New Zealand), and Westpac Banking Corporation (Westpac) - of their Aa2 long-term rating and placed them on the next level down at Aa3, although it did not alter their short-term ratings.

The big four Australian banks, which operate BNZ, ANZ, Westpac and ASB in New Zealand, have had their ratings downgraded ...

The big four Australian banks, which operate BNZ, ANZ, Westpac and ASB in New Zealand, have had their ratings downgraded by Moody's.

It said risks associated with the housing market had risen sharply in recent years and significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness.

READ MORE: 
Moody's downgrades Aussie banks on back of household debt pile
Lower credit rating means more costs for smaller banks

It comes after Standard & Poors reaffirmed the big four's ratings, while downgrading smaller banks because of the risk of a house price correction. It said it was confident that the big four would be considered too big to fail, and the Government would step in.

Credit ratings are relevant to consumers because a lower rating can make it harder or more expensive for a bank to raise money on wholesale markets. It might then pass on that extra cost to customers borrowing money.

Westpac today revealed its floating rates were increasing 0.11 per cent.

Infometrics forecaster Mieke Welvaert said it could be the first of many. "I think it's safe to expect that the banks who have been downgraded by Moody's will push up their interest rates."

Banking expert David Tripe, of Massey University, said it could make a difference to interest rates of about 10 basis points. "There is an indication of some panic about this rating change, but it's based on a collapse in Australian house prices which has not yet occurred."

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He said the banks should have some slack to absorb an increase in funding costs because swap rates had fallen about 30bps over the past four to five months, but advertised loan rates had not fallen.

New Zealand Bankers' Association chief executive Karen Scott-Howman said local banks were among the safest in the world.

"They are well capitalised, well regulated, and profitable. The Australian downgrade is not expected to affect us directly. Australia's banks remain very strong compared to their global peers," she said.

"Any ratings downgrade needs to be viewed in the context of everything else that's happening globally, and how our banks stack up compared to other banks and economies around the world. Investors will look at a range of relative factors."  

A Westpac spokesman said a range of factors influenced interest rates.

"Our recent adjustments were primarily driven by the increasingly competitive deposit market, which is driving up the relative price of deposits – despite wholesale rates decreasing. As sourcing deposit funds becomes more expensive, we are required to increase our home lending rates to compensate."

 - Stuff

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