A global credit ratings agency has ruled out the federal government ever following its European counterparts and nationalising banks, saying the nation's lenders are far stronger than those in the northern hemisphere.
Fitch Australia said a nationalisation or partial nationalisation of domestic banks is not warranted given the health of their balance sheets.
However, it said the federal government's proposed guarantee of between $800 billion and $900 billion in bank wholesale funding was needed to allow banks to compete for funding offshore.
Fitch rival Standard & Poor's (S&P) said the guarantee would not result in any revisions to banks' credit ratings even though it improved access to wholesale funding markets.
S&P said the guarantee was limited to improving access to funding only, and had a limited life and did not not cover all of banks obligations.
"As such (the scheme) does not address other generic risks inherent in financial institutions such as ongoing access to capital, global financial market volatility, weakening economic conditions, and risks emerging out of changes in business models or potential merger and acquisition activity,'' S&P said.
It said certain debt ratings could be raised and may be equalised with the sovereign ratings once further details of the guarantee were announced.
S&P said specific-issue credit ratings may be equalised with the ratings on the sovereign depending on whether the government would become liable for a payout immediately (or within a reasonable grace period), when called upon by a depositor or a creditor if a financial institution failed to pay on time.
The government has said it would guarantee the borrowings of Australian banks in international credit markets for five years and provide an unlimited guarantee over household and business deposits of any Australian financial institution that fails over the next three years.
The government would also extend a program to shore up the mortgage market through the purchase of an extra $4 billion of residential mortgage-backed securities.
The government's guarantee followed decisions by European leaders to guarantee new bank debt and keep distressed banks afloat after British Prime Minister Gordon Brown set up a 50 billion pound ($130 billion) taxpayer-funded program to rescue eight UK lenders.
The terms of the Australian bank wholesale funding guarantee have yet to be spelt out, including the duration of the guarantee, debt instruments covered, timeliness of payouts under the guarantee, and the ability of the government to revoke the guarantee or apply conditions to a payout.
S&P said it expected Australia's economy to grow further, albeit at a slower rate.
It said an upwards revisions of credit ratings was unlikely because the economy would continue to grow and banks had strong asset quality, sound capital positions, good earnings profiles and ``limited'' exposures to US sub-prime loans and associated structured transactions.
AAP
