Non-major CEO slams S&P downgrade

ME boss Jamie McPhee said the downgrade is evidence of the need for the bank levy announced in the federal budget.

“The current environment does not provide for ‘competitive neutrality’, which is to the detriment of consumers. This situation will remain until both the gap in capital requirements is further reduced and the cost of funding advantage currently being enjoyed by the major banks due to their ‘too big to fail’ status is removed,” Mr McPhee said.

On Monday S&P lowered its rating for ME Bank from BBB+ to BBB. AMP Bank, Bank of Queensland, Bendigo and Adelaide Bank, Defence Bank and many others saw their ratings reduced.

For ME Bank, a lower credit rating means the bonds it issues will not be eligible for dealing repurchase agreements with the Reserve Bank and as a result,  the group will not have the same access to capital markets as other banks.

Explaining its assessment of Australia’s financial institutions, S&P said its decision to except the big four banks from an otherwise widespread ratings downgrade was due to “the expectation of likely timely financial support from the Australian government if needed”.

However, Mr McPhee believes S&P’s decision has increased the advantage the major banks receive by a further rating notch and has negated the level playing field the bank levy may have achieved.

“Competition in banking took a backward step on Monday,” he said, adding that while S&P acknowledged that the big banks’ collective dominance was driving the system-wide risks in Australia, their decision to downgrade the ratings of many smaller banks solidified the dominance of the majors.

[Related: S&P affirms AAA but ‘negative watch’ to stay]