S&P downgrades banks' credit rating on property crash risk but big four escape

Ratings downgrade = increased borrowing costs = increased rates for customers?

S&P downgrades banks on property crash risk
[Ratings agency S&P Global has downgraded almost all financial institutions in Australia because they face an "increased risk of a sharp correction in property prices".

Twenty-three institutions, including AMP, Bank of Queensland, Bendigo and Adelaide Bank and Credit Union Australia, received downgrades to their stand-alone credit profiles.]

[The "big four" banks, however, managed to escape a downgrade because S&P believes they are likely to receive "timely financial support from the Australian Government" if there is a housing crash.

S&P believes the big banks are likely to receive preferential treatment from the Government if the housing market were to crash.]

 

I'm pretty sure AMP, BOQ and IMB are also ADI's?

 

My biggest take away from this is there goes the "increased competitiveness" I heard a week ago relating to the bank levy (which I believe applies only to the big 5). This will almost certainly mean smaller banks will hike rates, and the levy will almost certainly mean the big 5 will hike rates - equals the playing field between banks, and rates are probably trending up either way.

What I wonder is this: in a market perceived as increasingly risky, will customers now favour the big banks due to the (apparently) reduced likelihood of any (sustained) collapse, as bigger banks will probably attract bailouts. If the bubble bursts and bank liquidity suffers, if things did go bad, I see a lot of potential for a triage scenario. A big bank is probably going to get urgent and decisive assistance (bailout, possibly government sponsored tracker mortgages to help avoid defaults, possibly relaxed policy, who knows). A small bank might on the other hand be let go, so to speak, which could affect shareholders. Just my speculation of course, I could be way off.

I know bank bailouts were a total mess in Ireland, and not very well received publically - especially relating to Anglo Irish Bank. It was nationalised but later it was revealed a lot of dodgy mortgages had been hidden (there was a lot of loose lending that wasn't properly disclosed). Two other big banks were also bailed out, six banks in total.

 

A bit better news from S&P in regards to mortgage arrears
"Australia's overall mortgage dues might be decreasing but 90-day home loan defaults are getting wider"
Australia's overall mortgage dues might be decreasing but 90-day home loan defaults are getting wider

 

this article's data may be a bit lagging. I would expect more defaults by now as rate rises only really started hitting around end march / early april.

Looks like S&P may have some inside information to be doing the downgrades.

 

But if you read the core message in the article which says...
"Despite the downgrade and the view that the chance of a sharp correction in house prices has increased, S&P says the "outlook for Australian banks remains relatively benign by global standards".

.

 

Well our central bank and government still has some headroom to go in the case of a downturn in financial markets. RBA

well if they are comparing our banks to those European banks which are bordering on insolvency, our outlook would be pretty benign. besides as they have stated, gov is ready and has capacity to easily bail out big banks in case of any crisis.

 

I am a cynic

If I were to guess, I would say some powerful people had a word to some of their mates to offset some recent cost hikes....nudge nudge, wink wink.