Could Australian banks retain ratings despite sovereign downgrade?

Nikko AM Australia’s fixed income team has analysed whether it is possible for the banks to maintain their AA- ratings without the uplift from a AAA sovereign rating. We explore how the Australian banks receive their AA- ratings, whether they could maintain those ratings despite a sovereign downgrade and the implications of a downgrade for their access to funding and for spread movements. In our view, although it is possible for the banks to improve their capital levels and maintain their AA- ratings even if Australia loses its AAA rating, it is probably not all that likely. However, we do not believe it likely that a S&P downgrade would, in itself, limit the banks’ issuance access to offshore markets. (VIEW LINK)