Standard & Poor’s has revised its outlook for an Australian bank, because it believes that there is a lesser likelihood that the bank will implement adequate capital initiative to reduce risk.
Auswide Bank received an outlook revision from “positive” to “stable”, after the ratings agency determined that there was less than a one-in-three chance of the bank taking “capital initiatives to improve its risk-adjusted capital” (RAC) ratio to a rating it considers consistent with a higher ratio.
The agency also affirmed the bank’s BBB-/A-3 rating, but later withdrew it at the issuer’s request.
S&P has stated that it does not believe Auswide will meet its targeted RAC ratio of 13.5 per cent.
“As of June 30, 2017, Auswide’s RAC ratio was around 13 per cent, and we expect it to remain broadly similar over the next two years,” the statement read.
“Our forecast of Auswide’s RAC ratio takes into account the bank’s targeted regulatory capital ratio of at least 13.5 per cent (it was 14.8 per cent as of September 30, 2017).”
However, the ratings agency noted that Auswide’s broader credit profile will remain “largely unchanged” from its previous review.
S&P concluded: “The ratings on Auswide reflected its strong capitalisation and good credit-loss experience, benefiting from a focus on residential mortgages. Offsetting these factors is the bank’s small scale and high geographic and product concentration, which makes it susceptible to heightened competition from larger banks, including for funding (particularly in a stressed operating environment).
“We expect Auswide to achieve continued earnings growth, supported by efficiency initiatives in addition to pursuing product and service enhancements.”