Macquarie Rating Outlook Lowered as S&P Warns on Aussie Economy

(Bloomberg) -- Macquarie Group Ltd. and more than 20 smaller lenders in Australia had the outlook on their credit scores lowered by S&P Global Ratings amid concern about rising economic risks following strong growth in private sector debt and home prices.

The credit assessor warned that there was a one-in-three chance that it could reduce ratings on lenders including AMP Bank Ltd., Bendigo & Adelaide Bank Ltd. and Bank of Queensland Ltd. S&P also noted “emerging pressures” on the Australian government's backing for the banking system and said that its negative outlook on Macquarie's bank unit reflected risks to that support. 

Australia's household debt-to-income ratio has continued to rise from already high levels, according to the Reserve Bank of Australia. Home prices have surged in recent years, particularly in the major centers of Sydney and Melbourne, fueled by record low central bank interest rates. And while the expansion in private credit has slowed, it is still growing at an annual pace of 5.4 percent.

“Our base-case scenario remains that the growth in property prices and private sector debt will moderate and remain at relatively low levels in the next two years,” S&P said in a statement Monday. “However, in our alternative case, we assess that there is a one-in-three chance that the strong growth trend will resume,” resulting in growing risks of a sharp correction in property prices and credit losses for banks in Australia, it said.

There was no change to S&P's negative outlook for Commonwealth Bank of Australia, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. The so-called big four lenders were placed on negative outlook earlier this year, echoing S&P's changing view on the country's AAA sovereign rating.

S&P said there was a one-in-three possibility of it revising down its assessment of how supportive the Australian government would be to the four biggest banks, and that it would cut their ratings should that occur. It also warned it could lower their standalone profiles in the case of S&P's alternative scenario involving strong growth in private debt or real estate prices.

To contact the reporter on this story: Ruth Liew in Sydney at rliew6@bloomberg.net. To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Benjamin Purvis, Edward Johnson