Standard & Poor’s Names Australia Banks 1 of 5 Least-Risky Banking Systems in the World

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By Vittorio Hernandez | February 18, 2014 12:12 PM EST

After an in-depth analysis of the strength and stability of Australia's financial sector, ratings agency Standard & Poor's concluded that Aussie banks are among the five most stable in the world.

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As perceived earlier by the country's central bank, Australia's economic pace has been slowing down, which was confirmed Wednesday by the latest Westpac-Melbourne Institute Leading Index.

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It is an improvement from stable outlook that S&P gave Australian banks in 2012.

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The conclusion was made even if there are expectations of economic turbulence for the rest of 2014.

S&P analyst Gavin Gunning, in a report released on Monday, said, "We believe that Australia is currently one of the five least-risky banking systems of the 86 for which Standard & Poor's has published banking industry country risk assessments."

Besides Australia, the four other countries in the top 5 of S&P's list are Germany, Hong Kong, Canada and Switzerland.

Mr Gunning explained that Australian banks are generally well placed to deal with higher risks, if any would hit the country, because of this high level of profitability and being well-capitalised based on international benchmarks as well as having very good asset quality.

However, the agency found the funding and liquidity metrics of Aussie banks comparing less favourably by international standards. It also warned of threats, particularly worries over risks in China such as a potential hard landing by Beijing, re-intensification of euro stresses and domestic property sector risks.

The warning came at the same time that an American forecaster warned of property prices in Australia being cut into half in the coming years as a consequence of a bubble burst.

"We believe that risks to Australian bank ratings - even if lower probability - remain on the downside. To retain confidence at current rating levels, banks might have to navigate a variety of risks that could cause negative ratings momentum," the S&P analyst explained.

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(Photo: REUTERS / )
As perceived earlier by the country's central bank, Australia's economic pace has been slowing down, which was confirmed Wednesday by the latest Westpac-Melbourne Institute Leading Index.
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