January 30, 2012 / 7:21 AM / 8 years ago

UPDATE 1-Fitch puts Australia banks on review for possible downgrade over funding costs

(Adds details, comment)

SYDNEY, Jan 30 (Reuters) - Fitch ratings agency placed Australia’s four major banks on review for possible downgrade on Monday, reflecting their reliance on offshore funding as costs soar in the face of macroeconomic uncertainty.

Fitch said its negative view on Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank Ltd and Australia and New Zealand Banking Group was based on their weaker funding profiles than similarly rated peers and said any downgrades would be “most likely” be limited to one notch.

Australia’s ‘Big Four’ banks are set to raise around $100 billion this year, primarily from the United States and Europe to help meet a shortfall between deposits and lending.

Recent covered bond sales by the banks have come at almost twice the margins of unsecured debt raising last year, as the euro zone crisis roils markets

Fitch’s move to review Australian bank ratings comes after Standard & Poor’s Ratings Services cut the ratings on five Australian banks last month as a result of major changes in the criteria it uses to assess risk.

The banks were each cut one notch to AA minus, the fourth highest credit rating on S&P’s scale.

“If a downgrade is going to lead to the same level (as S&P) it is not really going to spook investors. I would not be overly concerned at this stage. My focus will be on the bank reporting season and what they say about bad debts etc,” said David Cassidy, chief equities strategist At UBS.

The Reserve Bank of Australia’s is due to meet on Feb. 7 to discuss the official cash rate with the market already pricing in a cut.

However, Australian’s banks have been reluctant to pass on the full cut to customers, as rising funding costs and low mortgage growth puts pressure on their margins.

The banks’ long-term issuer ratings are as follows; Commonwealth Bank of Australia, Westpac Banking Corporation, National Australia Bank Limited hold AA ratings, while Australia and New Zealand Banking Group sits at AA-.

Fitch affirmed six major Canadian banks in the report released on Monday.

Reporting by Amy Pyett; Editing by Lincoln Feast and Ed Davies

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