Fitch Ratings is considering a change of Australia's sovereign credit rating after the global financial crisis highlighted the risks of the banking sector's strong reliance on foreign capital.
Fitch currently has a AA+ rating for Australia's long-term foreign currency issuer default rating, which measures Australia's creditworthiness in the international markets.
"We have to think about what to do with the rating now that we think we are on the other end of this crisis, and whether a AA+ rating is still appropriate going forward," Fitch head of Asia-Pacific sovereign ratings James McCormack said last week.
In contrast to Standard & Poor's and Moody's, which both have assigned their highest rating of AAA to Australia, Fitch has traditionally been less optimistic about Australia's creditworthiness.
"The focus of our ongoing assessment of Australia's sovereign ratings takes into account the risks associated with the banks' heavy reliance on external funding, which Fitch has long believed represented a contingent sovereign liability," McCormack said.
"Over the past year, part of that contingent liability has become explicit under the government guarantee programme."
Between December 2008 and September 2009 Australian banks issued $185 billion in long-term bonds, of which $142 billion was guaranteed by the government.
Of this amount, $90 billion of guaranteed debt was issued externally, which means the government has accumulated contingent external liabilities totaling 7 per cent of its gross domestic product, Fitch said.
"Fitch will consider the experience of the crisis period in global capital markets in judging the risks that Australian banks represent to the sovereign going forward, since this has been the key issue which has differentiated Australia from AAA sovereigns up to now," McCormack said.
Fitch's next review of Australia is scheduled for April 2010, but McCormack said the ratings agency could change its ratings or outlooks at any time it feels it would be appropriate.
The outlook for Australia's credit rating is currently stable.
