Back in 2007, the ratings agencies were so woefully behind the eight ball in understanding and reporting the credit risks in the U.S. financial system that it was nearly impossible to tell from day to day whether they were really just that incompetent or if they were complicit in the biggest financial fraud in history. Regardless of which you believe is more likely, they seem intent upon not making the same mistake again…at least not in Australia.Â
As The Sydney Morning Herald points out today, Moody’s has cut the long-term credit rating of Australia’s four biggest banks after pointing to surging home prices, rising household debt and sluggish wage growth as potential threats to the financial industry down under. Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac Banking Corp. were all downgraded to Aa3 from Aa2, Moody’s said in a statement released earlier today. Per The Sydney Morning Herald:
“In Moody’s view, elevated risks within the household sector heighten the sensitivity of Australian banks’ credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years,” the statement said.
“In Moody’s assessment, risks associated with the housing market have risen sharply in recent years. Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness,” the statement said.
“The rise in household indebtedness comes against the backdrop of low wage growth and structural changes in the labour market, which have led to rising levels of underemployment.
“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.”
