Updated: Are Australasian banks that strong ?
UPDATE: Standard & Poor’s Ratings Services said today (26 Nov) that Australian major banks’ AA/Stable ratings remained unchanged in the context of recently released research on our risk-adjusted capital framework (RACF). “While Australian banks’ RAC scores are close to or slightly higher than the global average for major banks, and capital is a slight weakness to the rating profile, we consider the ‘AA’ ratings as stable and supported by other very strong business and financial considerations, as well as the evidenced flexibility to raise capital if needed,” said Standard & Poor’s credit analyst Michael Vine.
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S&P have just developed a new risk-adjusted capital framework (RACF). Their RACF aims to provide a measure that is independent from national regulations, Basel II methodological options, and banks’ internal risk measurement systems, as well as being consistent across banks and geographic regions.
They found that the average estimated RAC ratio for large international banks was 6.7% as of June 30, 2009, more than three percentage points below their average Tier 1 ratios. Of three lenders included in the review, ANZ scored the highest rating with 7.1%. National Australia Bank was at 6.9% and Commonwealth Bank at 6.3%, the top-rated global bank was HSBC on 9.2%,
Read their report here
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Perhaps Australian banks have lower risk adjusted capital but better franchises, management quality and operating environment quality than those in other countries, leaving them with higher credit ratings than on the basis of risk adjusted capital only?
@David Hillary – I plan to understand their method a little better, but note that they give credit for international diversification – something that Aussie banks don’t strongly have – aside from NZ of course.