Daily Commentary BY THE CURVE TEAM –

S&P Reassures Banks Credit Rating

9th of October, 2020

S&P provided an update on its outlook for the ratings of Australian banks.

Providing commentary that is well known, the S&P cited upcoming defaults, slow loan growth and low interest rates as providing headwinds for Australia’s banks. Positively, they believed for the next two years our banks would be able to absorb these headwinds assuming an economic recovery had begun by the end of 2020.

They did note though that risks to the economic recovery remain. The re-emergence of Covid-19 cases, delays to a vaccine and rising geopolitical tensions were all mentioned as risk factors to an economic recovery.

As well as the bank’s credit rating being tied to the fortunes of the economy, it is also strongly linked to our sovereign credit rating. The government have the ability to underwrite the bank, so if their credit worthiness were to deteriorate then the banks would to.

At the release of the budget, S&P reassured Australia’s AAA credit rating and it being on a negative outlook despite the large deficit. As long as spending levels begin to fall in line with expectations over the next few years S&P expect the rating to remain.

Related to the budget recovery and bank’s credit ratings are Covid-19 case numbers. Yesterday NSW recorded their first community transmission cases in 13 days. There were 5 community case transmission cases. Whether this leads to a larger outbreak will be monitored closely, as it will have implications for the economic recovery.

Victoria has also improved its numbers drastically. Once they have their 14-day moving average below 5 optimism will grow that a sustained recovery in the state is possible.

Josh Stewart

Client Relationship Manager