Both the Australia and New Zealand Banking Group (ASX: ANZ) share price and the Westpac Banking Corp (ASX: WBC) share price have drifted lower today after the banking giants had their outlooks downgraded by Fitch Ratings.
At the time of writing the ANZ share price is down 0.4% to $27.09 and the Westpac share price is off 0.3% to $27.60.
What did Fitch do?
Late on Wednesday afternoon Fitch announced that it has revised the outlook for Australia and New Zealand Banking Group Limited's Long-Term Issuer Default Rating (IDR) to Negative from Stable. The bank's IDR was reaffirmed at AA-.
Fitch has also revised the outlook for ANZ New Zealand's IDR to Negative from Stable and reaffirmed its IDR at AA-.
The ratings agency made the exact same revisions to both Westpac Banking Corporation's Long-Term IDR and its New Zealand subsidiary, Westpac New Zealand Limited.
Why has Fitch downgraded its outlooks?
Fitch advised that the change in outlook is largely in response to APRA's announcement on July 11 2019 which revealed that it was applying additional operational risk capital requirements on ANZ and Westpac.
This was in relation to both banks' self-assessment on governance, accountability, and culture.
One small positive, though, is that the Westpac release notes that the "affirmation of WBC's rating reflects Fitch's expectation that despite these challenges, the bank will maintain its strong company profile in the short term, which in turn supports its sound financial profile."
ANZ echoed this statement, advising that Fitch notes that ANZ "continues to have robust risk and reporting controls around other risks, including credit, market and liquidity risk, as reflected by its conservative underwriting standards and very high degree of asset quality stability."
Interestingly, just last week S&P Global Ratings upgraded the outlooks of ANZ, Westpac and the rest of the big four to Stable from Negative.
It made the change to reflect its view that the Australian Government remains highly supportive of Australia's systemically important banks based on APRA's release on loss absorbing capacity on July 9.
Though, it is worth noting that this pre-dates APRA's latest move, which could potentially mean another revision by S&P Global Ratings in the near term.
