Ratings agency S&P has revised its outlook for a leading non-major lender as the challenger bank continues to broaden its offerings and increase products per customer.
In a note last week, the global ratings agency said it had revised its outlook on ING Bank (Australia) Ltd. (IBAL) to positive from stable. At the same time, S&P affirmed its 'A-/A-2' ratings on the bank.
"In our view, IBAL's strategy to broaden its product suite and increase the number of products per customer has started to gain traction, albeit off a low base," S&P Global Ratings credit analyst Michael Puli said.
"Ongoing success in this strategy could materially increase the number and proportion of customers that consider the bank their main financial institution."
Mr Puli noted that the bank's strategy may increase its market share and strengthen its long-term business franchise.
S&P said the ratings on ING Direct reflect its “very strong capitalisation and very good credit loss experience, benefiting from a focus on residential mortgages across Australia.”
“Offsetting these factors is the bank's small balance sheet relative to the Australian major banks, which we believe would be at a competitive advantage in sourcing domestic funds under a stress scenario.
Mr Puli said there is a one-in-three chance that S&P will raise the long-term issuer credit rating on the foreign-owned bank to 'A', driven by its strengthening business franchise and market position.
“We expect this scenario to emerge if the bank is successful in achieving its targets of increasing the proportion of customers that consider it their main financial institution, strong balance sheet growth, maintaining good operating performance, and deepening its relationship with customers via a broader product suite and other initiatives, and consequently we form an opinion that the bank's business position has significantly strengthened.”
However, S&P could also revise the outlook to stable if it believes ING Direct was unable to demonstrate that its strategy is strengthening its business franchise.
"We expect to lower the issuer credit rating on IBAL if both the bank's and the group's creditworthiness weakened — a scenario we consider highly unlikely in the next two years," Mr Puli concluded.