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The Australian banking sector is likely to suffer a further blow as the latest round of credit-rating agencies to downgrade the ratings of its major lenders, and potentially even the entire banking sector, is expected to happen within the next two weeks.
The Australian Financial Review has learnt that Moody’s, Standard and Poor’s, Fitch and Moody’s Analytics are expected to issue their final outlooks of the banking sector in two weeks time.
“Moody’s and Standard & Poor’s are both expected to downgrade Australia’s credit rating,” a source with knowledge of the matter told the newspaper.
The latest downgrade comes as Australia’s banks are already facing a massive bail-in after the Reserve Bank of Australia said it would use its emergency powers to recapitalise the country’s financial system.
The banks have already been forced to take out large loan repayments in order to keep afloat, while some are still struggling to get back to normal after being bailed out by the central bank.
According to the latest forecasts, Australia’s banking sector could face a further downgrade by the end of next week, with the banks likely to have to take significant additional debt, with Moody’s and S&P warning that the next downgrade could be severe.
“While we are still awaiting the Moody’s final report, we expect the rating to be downgraded to AA from AAa, with a negative outlook for the banking system,” Moody’s senior credit analyst, David Schuster, told the publication.
Moodys analysts say the next review will also look at the “strategic impact” of the bail-out, and could even lead to a downgrade of the Australian dollar.
“The impact of a possible downgrade of Australia’s rating is likely, as we expect this to be accompanied by a further deterioration in the Australian economy,” Schuster said.
“We do not anticipate a large change in the outlook for Australian equities or Australian government bond yields in the next 12 to 18 months.”
According to Schuster’s forecast, Australia could also see its foreign currency reserves fall to around $100 billion by 2020, meaning that the country could become “inflation-sensitive”.
“The Government has indicated that it will not use the monetary policy tools available to stabilise the Australian currency to support the banking and economic system in a way that would reduce the risks to the country,” the Moody said in its latest outlook.
In a statement, the Australian National Bank said that it would continue to maintain its strong credit rating and that the bank would “continue to make the most of the Reserve’s support and assist in maintaining its core operations and operating standards”.
The latest rating downgrade comes at a time when the Reserve has been forced into the spotlight as its economic policies have been heavily criticised by the public and political leaders.
On Friday, Reserve Bank Governor Glenn Stevens was forced to resign over the bank’s poor handling of the financial crisis and its failure to take tough action to curb inflation.
The Reserve’s current rating outlook was upgraded from AA to AAa by Moody’s on Thursday.
Mortgage insurer Macquarie also announced on Friday that it had upgraded its credit rating to AA, after a similar downgrade was announced by the credit rating agency last week.
The Bank of Queensland said on Friday it would be keeping its current rating for a further two years.