Powered by MOMENTUM MEDIA
subscribe to our newsletter

Banking royal commission could force S&P revision

Standard & Poor’s has warned that a royal commission into the banks could force the ratings agency to revise its view of the Australian banking sector.

Following Standard & Poor’s (S&P) Australian banking sector update, the agency’s director of financial institutions and ratings, Sharad Jain, stated that despite its current view of the sector’s compliance with regulation as “very high quality”, S&P could be forced to “revise” its current assessment of the banks.

Mr Jain said that while the ratings agency currently believes banking governance and risk management is “as good as anywhere else globally”, he warned that if the royal commission finds that “systematic manipulation of rules and regulations” is “putting the banking sector at risk”, S&P could take appropriate precautions in response to the findings.

“If that does come out, then we would obviously need to take that into account, and we may indeed revise some of our current assessments, because that would suggest there are elements of greater risk in the banking system than what we had considered,” the director said.

He added that while banks are currently able to “price for risk”, restrictions that may be introduced following the royal commission could tempt the banks to “indulge” in risky activities like principal trading and investment banking.

Advertisement
Advertisement

“The other things that such an inquiry may lead to is that if that inquiry is then followed up with some restrictions put in place onto the banks’ behaviour, then that could have some unintended consequences.

“If there are some restrictions put in place that would make it difficult for the banks to post the earnings that they consider reasonable, then there is a potential for the banks to move to some riskier strategies to try and get those returns that they consider reasonable in that hypothetical scenario.”

Further, Mr Jain noted that a draining of the banks’ management resources during the royal commission could be another factor which influences S&P to revise its view of the sector.

The director concluded: “The final point I would have on such an inquiry is that in the interim, obviously as any inquiry does, is it would suck up a degree of management resources, and could prove to be some degree of distraction for management.”

[Related: Government agrees to hold royal commission into banks]

PROMOTED CONTENT


Banking royal commission could force S&P revision
mortgagebusiness

Are you a new-to-industry broker in the process of growing your business? Then there’s some great news: The Adviser’s New Broker Academy is back in 2021 and will provide you with essential insights into cutting-edge tools, strategies and processes to fast-track to success. Don’t miss your chance to attend. To secure your FREE place, visit newbroker.com.au now!

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

Reverse mortgage lenders have accessed a small fraction of the potential retiree housing market in Australia, according to Deloitte. ...

Pepper Money has priced its second I-Prime deal for the year, upsizing the figure to $850 million. ...

The LMI provider has announced a new CFO following the resignation of its current CFO, effective 24 September. ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

How long do you think it should take to discharge a mortgage?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.