The Moody’s downgrade is not as important as it sounds, nor is it unexpected. In brief: Moody’s had rated the banks one notch higher than S&P & Fitch so the downgrade has brought them all in line with each other. Moody’s held the banks on negative outlook for 2yrs (maximum period to hold a ‘non-stable outlook’) up until 16-Feb, at which point it moved to ‘review for downgrade’ and looked to wrap this up within 90 days… being today. The announcement back on 16-Feb had an impact in offshore markets, which reversed within the hour, and it is probably fair to say a lot of people offshore will once again see the headline and react but on further inspection will realise it is not a market moving piece of news.
Reasoning for the downgrade is the Australian banking industry’s structural sensitivity to wholesale funding markets, particularly the reliance on off-shore wholesale funding sources. This is not new and unlikely to change any time soon. The banks still benefit from a 2-notch uplift from Government support, this has not changed.
Also note, AAA rated government guaranteed debt will not be impacted.
Westpac Banking Corporation