Australian banks' credit ratings will be reviewed by Moody's Investors Service as the economy deteriorates more than previously forecast.
The New York-based ratings company said the review was necessary because it expects a 0.4% contraction in Australia's economy for 2009 and a peak in unemployment of 7.2% in the third quarter of 2010.
''The outlook for the Australian economy continues to weaken,'' it said in a statement yesterday. ''Moody's will consider the potential impact on asset quality and earnings - and how this may affect Australian bank financial strength ratings.''
The Australian banking system remains one of the highest- rated by Moody's, with the four biggest lenders - Westpac, Commonwealth Bank of Australia, National Australia Bank and ANZ bank - carrying financial strength ratings of B and deposit and debt ratings of Aa1.
Westpac, Australia's biggest bank by market value, said yesterday first-quarter profit stalled as rising bad debts erased gains in fee income from the takeover of St. George Bank. Commonwealth, ANZ and National Australia Bank have also reported rising bad debts and slowing profit growth this month.
Still, Australia's banks have so far avoided the losses posted by global competitors including Citigroup Inc. Local lenders are benefiting from demand for sales of government- guaranteed bonds, Australia's central bank said this week.
The nation's biggest banks have sold more than $US45 billion ($70 billion) of state-guaranteed notes since Nov. 28, when the AAA-rated government first backed their funding in a bid to thaw credit markets frozen by Lehman Brothers Holdings Inc.'s bankruptcy, according to data compiled by Bloomberg.
Australian banks' Tier 1 ratios, a key measure of financial strength, now ''compare better to their international peers than pre-crisis,'' Moody's said. The Australian government's flexibility to support the financial system and stimulate the economy is ''strong,'' it said.
The ratings company said it expects to make a more detailed report by March.
Australia's gross domestic product expanded 0.1% in the third quarter, the weakest pace in eight years. Figures for the last three months of 2008 will be published on March 4.
Central bank officials cut their forecasts for economic growth and inflation earlier this month as demand for exports declines amid recessions in Japan, the US, and Europe.
Gross domestic product will rise 0.25% in the 12 months through June, compared with a November prediction of 1.5%, the Reserve Bank of Australia said on Feb. 6.
Bloomberg News