Overview
- Suncorp recently announced that it is undertaking a strategic review of its banking operations.
- We believe that the likelihood of group support for the bank has therefore weakened slightly.
- Consequently, we are lowering our long- and short-term ratings on SML to 'A+/A-1'. The outlook is negative.
Rating Action
On June 29, 2022, S&P Global Ratings lowered its long- and short-term issuer credit ratings on Australia-based regional bank Suncorp-Metway Ltd. (SML) to 'A+' from 'AA-' and to 'A-1' from 'A-1+', respectively. The outlook is negative.
Rationale
In our view, the likelihood of support from SML's parent, Suncorp Group Ltd. (A+/Stable/--; core operating entities rated 'AA-'), has slightly weakened following its recent announcement that it's undertaking a strategic review of its banking operations. We believe that the group may decide to divest SML after this review. The bank is no longer a core part of the group, in our view. As such, we have lowered our long-term rating on SML by one notch to 'A+'. We no longer equalize our ratings on SML with the credit strength of Suncorp.
Nevertheless, we still apply a three-notch uplift in our long-term rating on SML above the bank's standalone credit profile. We consider that the likelihood of the group's support for the bank remains very high under most foreseeable situations. We believe the bank is still a highly strategic business for the group. SML remains wholly owned by Suncorp and it shares the Suncorp brand name. Furthermore, the bank has contributed about one-third of group earnings in the past financial year.
The negative outlook reflects a one-in-three possibility of further downgrade. This is likely to occur if Suncorp decides to proceed with divestment of SML.
Our view of the group credit strength of the wider Suncorp group has not weakened because of the review of its banking operations. All other ratings on the group and its subsidiaries remain unchanged currently.
The standalone credit profile of the bank also remains unchanged, in our opinion.
Outlook
The negative outlook reflects a one-in-three potential for further downgrade in the next two years. This is likely to occur if Suncorp decides to proceed with divestment of SML.
Downside scenario
We would likely lower our rating on SML if:
- The strategic importance of SML to Suncorp weakens significantly, in our opinion. A likely scenario would be a decision by Suncorp to divest SML.
- There is a change in SML's ownership structure, and under the new ownership the bank's standalone credit profile weakens or the uplift in our rating on the bank above its standalone credit profile is reduced/eliminated.
Upside scenario
We could revise our outlook on SML to stable if we believe the likelihood of sale has decreased.
Ratings Score Snapshot
| To | From | |||||
|---|---|---|---|---|---|---|
| Issuer Credit Rating | A+/Negative/A-1 | AA-/Stable/A-1+ | ||||
| SACP | bbb+ | bbb+ | ||||
| Anchor | bbb+ | bbb+ | ||||
| Business position | Adequate (0) | Adequate (0) | ||||
| Capital and earnings | Strong (+1) | Strong (+1) | ||||
| Risk position | Adequate (0) | Adequate (0) | ||||
| Funding | Moderate (-1) | Moderate (-1) | ||||
| Liquidity | Adequate (0) | Adequate (0) | ||||
| Comparable ratings analysis | 0 | 0 | ||||
| Support | ||||||
| ALAC support | 0 | 0 | ||||
| GRE support | 0 | 0 | ||||
| Group support | 3 | 4 | ||||
| Sovereign support | 0 | 0 | ||||
| Additional factors | 0 | 0 | ||||
| SACP--Stand-alone credit profile. | ||||||
ESG credit indicators: E-2, S-2, G2
Related Criteria
- General Criteria: Hybrid Capital: Methodology And Assumptions, March 2, 2022
- Criteria | Financial Institutions | General: Financial Institutions Rating Methodology, Dec. 9, 2021
- Criteria | Financial Institutions | Banks: Banking Industry Country Risk Assessment Methodology And Assumptions, Dec. 9, 2021
- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10, 2021
- 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: Principles Of Credit Ratings, Feb. 16, 2011
Ratings List
| Downgraded | ||
|---|---|---|
| To | From | |
|
Suncorp-Metway Ltd. |
||
| Senior Unsecured | A+ | AA- |
| Commercial Paper | A-1 | A-1+ |
| Downgraded; CreditWatch/Outlook Action | ||
| To | From | |
|
Suncorp-Metway Ltd. |
||
| Issuer Credit Rating | A+/Negative/A-1 | AA-/Stable/A-1+ |
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Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.
| Primary Credit Analyst: | Mark P Symes, Melbourne (61) 3-9631-2051; mark.symes@spglobal.com |
| Secondary Contact: | Nico N DeLange, Sydney + 61 2 9255 9887; nico.delange@spglobal.com |
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