S&P has released its new BICRA scores for countries and Australia come out OK:
Standard & Poor’s Ratings Services classifies the banking sector of Australia (AAA/Stable/A-1+) in group ‘2’ under its Banking Industry Country Risk Assessment (BICRA). Some of the other countries in group ‘2’ are Canada, Germany, Hong Kong, Japan, Singapore, Sweden, and Switzerland. (See chart 1). Our bank criteria use our BICRA economic risk and industry risk scores to determine a bank’s anchor, the starting point in assigning an issuer credit rating. The anchor for banks operating only in Australia is ‘a-‘. Australia benefits from being a wealthy, open, and resilient economy that has performed relatively well during and following negative cycles and external shocks, including the global recession in 2009. We forecast that solid economic growth will continue over the short-to-medium term, even if slightly below trend given a muted recovery in non-mining business investment. We see potential risk of low interest rates contributing to higher house prices–as has occurred in recent years–adding vulnerability to the banking system although we believe that likely loan losses will remain very low by international standards. In our view, the economy is dependent on external savings to fund economic activity and growth Australia’s high current account deficits and external debt. We regard institutional and competitive environment for banks in Australia as low-risk. We believe the structure of the banking industry is supportive of industry stability–with a small number of strong retail and commercial banks dominating the industry. We believe that conservative and proactive regulatory and governance frameworks engender very low risk appetites and underpin banking system stability. Offsetting these positive elements, however, are the Australian banking system’s relatively low levels of customer deposits and its sizeable dependence on net external borrowings, despite some improvements in banks’ funding profile in recent years.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.