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S&P says major Australia banks not at risk of downgrade amid pandemic

[BENGALURU] Major Australian banks can weather a substantial rise in credit losses triggered by the coronavirus outbreak while credit ratings of most banks in the country are not at risk of a downgrade, ratings agency S&P Global said.

The agency, however, expects credit losses at banks in 2020 to more than triple from 2019 levels as the pandemic disrupts business, up from its earlier estimate that losses would nearly double.

S&P said major banks would be able to withstand credit losses surging to about six times 2019 levels and that capital at most banks would not fall significantly despite substantially lower net earnings and dividend payouts.

"Our forecast that the Australian economy will strongly rebound toward the end of the current calendar year following a significant downturn underpins our analysis," S&P said.

The agency also lauded the Reserve Bank of Australia's actions of recent weeks to ensure banks do not face an imminent funding or liquidity crisis.

Australia's prudential regulator also loosened its capital requirements last month to enable banks to lend more freely and boost credit flow.

Still, S&P warned that "a more severe and longer lasting downturn", potentially due to a sharp fall in property prices and materially weaker economic outlook, would trigger downgrades for banks.

REUTERS

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