ANZ and Westpac credit ratings downgraded

by Ksenia Stepanova18 Jul 2019

ANZ Bank has suffered another blow, with international credit rating agency Fitch downgrading its Australia and New Zealand operations from a ‘stable’ to a ‘negative’ outlook.

The agency cited “material shortcomings” in the bank’s operational risk management, which it says were “not aligned with the assessment Fitch had previously incorporated into its ratings.” Fellow bank Westpac was also downgraded to negative for the same reasons, intensifying the already substantial reputational damage both banks faced following the Australian Royal Commission.

The decision of the Australian Prudential Regulation Authority (APRA) that both banks should carry A$500 million in additional operational risk capital was cited as the “main driver” behind each decision, with Fitch stating that shortcomings in risk controls would also add to rating pressure.

"This resulted in a downward revision to our score for management and strategy, and a negative outlook on earnings and profitability,” Fitch said of both banks. It says risks will also be heightened if management cannot contain the fallout created through the remediation of these shortcomings, and fails to prevent them from “spilling over into its ongoing business.”

“Both outlooks may be revised to ‘stable’ if the governance of operational and compliance risks can be strengthened in line with regulatory expectations without a substantial negative impact on the ongoing businesses and earnings,” Fitch added.

This development has continued ANZ New Zealand’s recent run of bad news, which began with its censure by the Reserve Bank for using an unapproved operational risk capital model since as far back as 2014.

This was followed by the departure of CEO David Hisco following an internal personal expenses review, and a suggestion from ANZ that it may ‘review’ its New Zealand operations if the Reserve Bank’s proposed capital requirements were to go forward.

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