Banking outlook 'stable'

According to a statement from Fitch, the rating affirmations reflect the banks' dominant franchises in Australia and New Zealand, strong and stable profitability, generally robust risk management, solid liquidity management and adequate capitalisation.

The agency also takes comfort from the banks' straightforward and transparent business models, and the conservative and hands-on approach of the Australian prudential regulator.

Offsetting these factors are a structural reliance on wholesale funding, particularly from offshore markets, and high household indebtedness in Australia.

Fitch also found that each of the majors have improved their funding profiles since 2008, growing the proportion of deposits, reducing their use of short-term wholesale funding, particularly from offshore sources, and increasing the duration of their wholesale funding portfolios.

“Nevertheless, at just under 40 per cent of total funding, the reliance on wholesale funding is high relative to international peers and exposes the banks to dislocation in international wholesale funding markets,” a statement by Fitch read.

“Fitch expects the banks to focus on improving funding stability - either through further lengthening of wholesale funding and/or increased use of customer deposits. Structural issues, such as Australia's compulsory pension scheme, mean wholesale funding is likely to remain an important part of the banks' funding structures.

“The risks associated with these profiles are generally well managed, with wholesale funding diversified by geography, product, investor and maturity, fully collateralised swaps used to hedge all foreign currency borrowings and by maintaining significant holdings of high-quality liquid assets that are eligible for central bank repo-facilities.”