Credit rating agency to possibly align the bank’s ratings with those of ANZ if proposed acquisition proceeds
S&P Global Ratings has confirmed its ‘A+’ long-term issuer credit rating for Suncorp-Metway Ltd. (SML) or Suncorp Bank, while also upholding its ‘A-1’ short-term issuer credit rating for the bank.
The rating decision mirrors S&P’s expectation that Suncorp Group Ltd. (SGL) will continue to support the bank, which represents a significant portion of the group’s operations, contributing to approximately 50% of its regulatory capital and 40% of its earnings.
The Australian Competition Tribunal is currently reviewing ANZ’s proposed acquisition of Suncorp Bank. Should the acquisition be approved, the Brisbane-based bank is expected to be fully integrated into ANZ’s operations, leading S&P to possibly align Suncorp Bank’s ratings with those of ANZ.
“If the acquisition does not proceed, we believe SML is likely to remain strategically important to SGL, and hence receive support in most foreseeable circumstances,” the credit rating agency said. “SML is a considerable part of the SGL’s franchise and shares the same name. There is therefore a material incentive for SGL to support SML to avoid reputational damage.”
According to S&P Global Ratings, Suncorp Bank, on its own, is expected to continue with a low-risk, retail banking model, bolstered by a strong capital framework.
“SML’s core banking operations are primarily focused on residential mortgage and secured business lending and are therefore neither complex nor high-risk,” it said. “We believe the bank has the capabilities to manage risk from its lending products.”
S&P, however, said that the bank remains exposed to potential funding challenges from Australia’s major banks, which could intensify competition for domestic deposits in the event of disruptions in international wholesale funding markets.
Despite potential economic challenges, including rising interest rates and consumer prices, the outlook for Australian banks remains stable, with S&P forecasting modest growth in house prices over the next two years.
The positive outlook for Suncorp Bank suggests a possibility of an upgrade in its ratings if the sale to ANZ proceeds. Should the ANZ transaction complete within the next 12 months as planned, S&P anticipates a one-notch upgrade for Suncorp Bank’s rating to match ANZ’s.
In the event the sale to ANZ does not proceed, S&P may revise its outlook for the bank to stable, reflecting the ongoing strategic importance of the bank to Suncorp Group. A less likely scenario would see S&P downgrading SML’s rating if it is sold to a lower-rated entity instead of proceeding with the ANZ sale.
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