Investors were scrambling early on Tuesday morning following the downgrade of 12 Australian financial institutions by global credit ratings agency Moody’s including the big four banks.
Moody’s cited high levels of debt and rapid credit expansion in the context of nominal wage growth had forced its hand, increasing the sensitivity of household expenditure and therefore the banking sector’s exposure to a potential shock.
Equity price action was mixed in the opening minutes of trade but the big four banks all opened down with ANZ down 0.6 per cent, Commonwealth Bank down 0.4 per cent, NAB down 0.8 per cent and Westpac down 1 per cent at one point despite a strong lead from financials on Wall Street.
By 10.30am the big four had clawed back some ground but remained in the red. The Australian dollar also fell overnight, easing 0.2 per cent to US75.97c.
ANZ and Westpac filed notices with the ASX late on Monday noting the downgrade while Commonwealth Bank and NAB made similar announcements early on Tuesday morning.
The disclosure from NAB was the most detailed of the big four and explained that the move flowed from “Moody’s view of elevated risks of the Australian household sector in the context of very high ratings assigned to the Australian banks”.
Among the other ASX listed banks to receive a downgrade and inform investors was Bendigo and Adelaide Bank. Shares in the bank were up 0.6 per cent in morning trade.
In its statement to the exchange on Tuesday morning it pointed out that Moody’s was not expecting a sharp downturn in housing as a “core scenario” but rather a “tail risk”. It also said the change was not expected to have a “material impact on the availability or cost of funding” for the bank. Shares in Bendigo Bank were flat.