S&P affirms ratings, revises outlook for Aust major banks

ASX
Release


8 April 2020

S&P Global Ratings revises Australia’s credit rating outlook to “negative” with a
similar impact on the credit rating outlook for the Australian major banks

Today S&P Global Ratings affirmed Australia’s AAA/A-1+ ratings but revised the outlook on
these ratings to “negative”.

As a result of the change in Australia’s sovereign rating outlook, the rating outlooks for the
Australian major banks, including Westpac, have also been revised to “negative” from
“stable”.

S&P Global Ratings has affirmed Westpac Banking Corporation’s current issuer credit
rating of AA- long term, and A-1+ short term, but the outlook has been revised to
“negative”. S&P Global Ratings has affirmed the current issuer credit ratings of other
Westpac subsidiaries, including Westpac New Zealand Limited, but the outlooks have also
been revised to “negative”.

The rating outlook for Westpac’s hybrid Tier 1 instruments and Tier 2 subordinated
notes have not been impacted and remain unchanged.

S&P Global Ratings revised the outlook on the long term issuer credit rating on the
Commonwealth of Australia to “negative” from “stable” to reflect a substantial deterioration
in the sovereign's fiscal headroom at the 'AAA' rating level.

The S&P Global Ratings release on Westpac is attached.



For further information:



David Lording Andrew Bowden
Group Head of Media Relations Head of Investor Relations
0419 683 411 0438 284 863


This document has been authorised for release by Timothy Hartin, Group Company Secretary.



Level 18, 275 Kent Street
Sydney, NSW, 2000

Research Update:
Westpac Banking Corp. Outlook Revised To Negative
Following Sovereign Outlook Revision; Ratings
Affirmed At 'AA-/A-1+'
April 8, 2020
Overview
- On April 8, 2020, we revised the outlook on our long-term issuer credit rating on the
Commonwealth of Australia to negative from stable to reflect a substantial deterioration in the
sovereign's fiscal headroom at the 'AAA' rating level.
- A lower rating on the sovereign would reflect slightly reduced financial capacity to provide
timely financial support to Westpac and other systemically important institutions, if needed.
- We are revising our outlook on Westpac to negative from stable, and affirming our 'AA-'
long-term and 'A-1+' short-term ratings on the bank.
- The negative outlook reflects a one-in-three likelihood that we will lower our long-term rating
on Westpac in the next two years. In our base case, we expect that despite a significant fall in
interest and fee income, Westpac's earnings in the next two years will remain sufficient to
absorb the increase in credit losses due to the COVID-19 outbreak and containment measures.
Rating Action
On April 8, 2020, S&P Global Ratings revised its outlook on its long-term issuer credit rating on
Westpac Banking Corp. (Westpac) to negative from stable. At the same time, we affirmed our 'AA-'
long-term issuer credit rating and 'A-1+' short-term issuer credit rating on Westpac. We have also
affirmed all our ratings on debt issued by Westpac.
Rationale
The revision in outlook on Westpac mirrors a similar rating action on the Commonwealth of
Australia (AAA/Negative/A-1+). The government has announced several large stimulus packages
to support the economy in response to the COVID-19 shock, and we expect the government's fiscal
profile to weaken as a result.
Research Update:
Westpac Banking Corp. Outlook Revised To Negative
Following Sovereign Outlook Revision; Ratings
Affirmed At 'AA-/A-1+'
April 8, 2020
PRIMARY CREDIT ANALYST
Sharad Jain
Melbourne
(61) 3-9631-2077
sharad.jain
@spglobal.com
SECONDARY CONTACTS
Nico N DeLange
Sydney
(61) 2-9255-9887
nico.delange
@spglobal.com
Lisa Barrett
Melbourne
(61) 3-9631-2081
lisa.barrett
@spglobal.com
www.spglobal.com/ratingsdirectApril 8, 2020 1

We expect to lower our long-term issuer credit rating on Westpac and its core operating
subsidiaries to 'A+' if we were to lower our long-term issuer credit rating on Australia to 'AA+'. In
this scenario, we also expect to lower our short-term issuer credit rating on Westpac to 'A-1'. This
is because we consider that a lower rating on the sovereign would reflect slightly reduced financial
capacity to provide timely financial support to Westpac and other systemically important
institutions, if needed.
We consider that Westpac is adequately placed to absorb the increased credit losses--due to the
COVID-19 outbreak and containment measures--within its earnings, despite weaker interest
margins, fee income, and loan growth compared with recent years. We consider that the
substantial fiscal and policy support from the Australian authorities and a strong economic
rebound toward the end of calendar 2020 should help to limit the rise in credit losses. We expect
that the absolute amount of capital held by the bank will not reduce. Strong and timely monetary
support announced by the Australian authorities has alleviated funding and liquidity risks to
Westpac from the global financial market dislocation, in our view. We also believe that the
likelihood of timely financial support from the Australian government, if needed, remains high.
Consequently, our assessment of the Westpac group's stand-alone credit profile (SACP) remains
unchanged and we have affirmed our ratings on the bank and its core operating subsidiaries.
Outlook
The negative outlook reflects a one-in-three likelihood that we will lower our long-term rating on
Westpac in the next two years. In our base case, we expect that despite a significant fall in interest
and fee income, Westpac's earnings in the next two years will remain sufficient to absorb the
increase in credit losses due to the COVID-19 outbreak and containment measures. Consequently,
we expect that the absolute amount of capital held by the Westpac group will not reduce. We
forecast a strong economic rebound toward the end of calendar 2020 following a significant
downturn. We expect loan growth to remain subdued in the next two years. We also expect that
Westpac will be able to adequately manage the funding and liquidity challenges posed by the
financial market dislocation in this period.
A weakening in economic conditions may lead us to conclude that systemic risks facing Australian
banks have increased. If we worsen the economic risk score by one category within our Banking
Industry Country Risk Assessment (BICRA) for Australia to reflect higher systemic risks, we would
apply higher risk weights in our capital analysis to reflect the same, which would result in a
weakening in our risk-adjusted capital ratios for all banks in Australia. Our SACP for Westpac may
weaken by one notch in such a scenario. Consequently, we may lower our ratings on the tier-1 and
tier-2 regulatory capital instruments issued by the Westpac group in this scenario. At the same
time, we expect our issuer credit rating and our ratings on senior debt issued by the Westpac
group to remain unchanged in this scenario due to increased uplift from likely sovereign support to
three notches, if other things remained unchanged.
Downside scenario
We expect to lower our long-term issuer credit rating on Westpac and its core operating
subsidiaries to 'A+' if we were to lower our long-term local currency issuer credit rating on the
Commonwealth of Australia to 'AA+'. This is because we consider that a lower rating on the
sovereign would reflect slightly reduced financial capacity to provide timely financial support to
Westpac and other systemically important institutions in Australia, if needed.
In a less likely and more severe downside scenario, well beyond our current forecasts, we could
www.spglobal.com/ratingsdirectApril 8, 2020 2
Research Update: Westpac Banking Corp. Outlook Revised To Negative Following Sovereign Outlook Revision; Ratings Affirmed At 'AA-/A-1+'

worsen the economic risk score by more than one category within our BICRA on Australia or
otherwise worsen our overall BICRA score on Australia, which would likely be reflected in
widespread downgrades for Australian banks. A hypothetical example of such a scenario would be
an imminent or actual rapid fall in property prices along with a materially weaker economic
outlook than our current forecast. A material fall in our risk-adjusted capital ratio for Westpac, for
example due to very large credit losses, is another unlikely downgrade scenario.
Upside scenario
We expect to revise the outlook to stable if we affirmed our issuer credit rating of 'AAA' on the
Commonwealth of Australia with a stable outlook, and we do not see emergence of a substantially
weaker economic outlook compared with our current forecast.
Ratings Score Snapshot
ToFrom
Issuer Credit RatingAA-/Negative/A-1+AA-/Stable/A-1+
SACPaa
Anchorbbb+bbb+
Business PositionStrong (+1)Strong (+1)
Capital and EarningsStrong (+1)Strong (+1)
Risk PositionAdequate (0)Adequate (0)
Funding and LiquidityAverage and Adequate (0)Average and Adequate (0)
Support+2+2
ALAC Support00
GRE Support00
Group Support00
Sovereign Support+2+2
Additional Factors00
Related Criteria
- General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
- General Criteria: Group Rating Methodology, July 1, 2019
- Criteria | Financial Institutions | General: Risk-Adjusted Capital Framework Methodology, July
20, 2017
- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
- General Criteria: Guarantee Criteria, Oct. 21, 2016
- General Criteria: Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of
'D' And 'SD' Ratings, Oct. 24, 2013
- Criteria | Financial Institutions | Banks: Assessing Bank Branch Creditworthiness, Oct. 14, 2013
www.spglobal.com/ratingsdirectApril 8, 2020 3
Research Update: Westpac Banking Corp. Outlook Revised To Negative Following Sovereign Outlook Revision; Ratings Affirmed At 'AA-/A-1+'

- Criteria | Financial Institutions | Banks: Quantitative Metrics For Rating Banks Globally:
Methodology And Assumptions, July 17, 2013
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment
Methodology And Assumptions, Nov. 9, 2011
- Criteria | Financial Institutions | Banks: Banks: Rating Methodology And Assumptions, Nov. 9,
2011
- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
- Criteria | Financial Institutions | Banks: Commercial Paper I: Banks, March 23, 2004
Related Research
- Australia Outlook Revised To Negative As COVID-19 Outbreak Weakens Fiscal Outcomes;
'AAA/A-1+' Ratings Affirmed; April 8, 2020.
- For Asia-Pacific Banks, COVID-19 Crisis Could Add US$300 Billion To Credit Costs, April 5, 2020
- Scenario and Sensitivity Analysis: Australian Banks Resilient To COVID-19 Crisis, April 1, 2020
- New Zealand Banks Buckle Down For Lockdown, March 31, 2020
- Credit Conditions Asia-Pacific: As Bad As 1997, March 30, 2020
- Downside Risks To Australian Property Prices Not Yet Alarming For Banks, March 25, 2020
- RBA's A$90 Billion Funding Salvo Softens COVID-19 Blow For Australian Banks, March 20, 2020
- Australian Banks Can Absorb COVID-19 Shocks, March 16, 2020
Ratings List
Ratings Affirmed
Westpac New Zealand Ltd.
Certificate Of Deposit
Local CurrencyAA-/A-1+
Westpac Banking Corp.
Senior UnsecuredAA-
SubordinatedA-
SubordinatedBBB+
Junior SubordinatedBBB-
Preference StockBBB
Preference StockBBB-
Short-Term DebtA-1+
Commercial PaperA-1+
Westpac Banking Corp. (London Branch)
Junior SubordinatedBBB-
www.spglobal.com/ratingsdirectApril 8, 2020 4
Research Update: Westpac Banking Corp. Outlook Revised To Negative Following Sovereign Outlook Revision; Ratings Affirmed At 'AA-/A-1+'

Westpac Banking Corp. (New Zealand Branch)
SubordinatedBBB-
Westpac New Zealand Ltd.
Senior UnsecuredAA-
Certificate Of DepositA-1+
Certificate Of DepositAA-
Westpac Securities NZ Limited (London Branch)
Senior UnsecuredAA-
Westpac Securities NZ Ltd.
Senior UnsecuredAA-
Commercial PaperA-1+
Ratings Affirmed; CreditWatch/Outlook Action
ToFrom
Westpac Banking Corp.
Westpac New Zealand Ltd.
Westpac Europe Ltd.
Issuer Credit RatingAA-/Negative/A-1+AA-/Stable/A-1+
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors,
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Research Update: Westpac Banking Corp. Outlook Revised To Negative Following Sovereign Outlook Revision; Ratings Affirmed At 'AA-/A-1+'

www.spglobal.com/ratingsdirectApril 8, 2020 6
Research Update: Westpac Banking Corp. Outlook Revised To Negative Following Sovereign Outlook Revision; Ratings Affirmed At 'AA-/A-1+'
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