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UPDATE 1-S&P cuts outlook on Australia's Macquarie, others to negative

Published 31/10/2016, 10:46 am
© Reuters.  UPDATE 1-S&P cuts outlook on Australia's Macquarie, others to negative

* Lowers outlook on Macquarie, AMP, regional banks

* Cites rising debt, property prices as risks

* Revision implies 1-in-3 chance of a downgrade in 2 years

* Financials weigh on the benchmark stock index (Updates with S&P comments, shares)

By Swati Pandey

SYDNEY, Oct 31 (Reuters) - Ratings agency Standard & Poor's on Monday cut its outlook to "negative" from "stable" on 25 Australian financial firms, including Macquarie Group MQG.AX , citing rising risks due to increasing private debt and a potential property shake-out.

S&P also lowered its outlook on AMP Bank, an arm of Australia's top insurer, AMP Ltd AMP.AX , and a number of regional banks and credit unions including Bank of Queensland BOQ.AX and Bendigo and Adelaide Bank BEN.AX .

The revisions imply a one-in-three chance of a downgrade in the next two years, the ratings agency said.

Australia's financial sector has faced growing calls in recent months for a national inquiry into the industry following a series of scandals over wealth management and insurance payouts as well as allegations of interest-rate rigging. sector is also experiencing slowing growth after years of record profits as bad debt charges tick up in an economy that is battling the end of a once-in-a-generation mining boom.

"The rating actions reflect S&P Global Ratings' view that the trend in economic risks facing financial institutions operating in Australia has become negative," S&P said in a statement.

Private debt accounted for 139 percent of GDP in June 2016 from 118 in 2010. That coupled with escalating property prices are likely to drive economic imbalances in the economy, S&P added.

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"We believe the risks of a sharp correction in property prices could increase and if that were to occur, credit losses incurred by all financial institutions operating in Australia are likely to be significantly greater."

Mortgages account for about two-thirds of banks' lending books.

S&P's ratings on Australia's four major banks - Commonwealth Bank CBA.AX , Westpac Banking WBC.AX , ANZ Banking Group ANZ.AX and National Australia Bank NAB.AX - are already on 'negative' watch.

In its base case scenario, S&P expects growth in both private sector debt and property prices to moderate and remain "relatively low" in the next two years.

"We believe that increasing apartment supply in Sydney and Melbourne, and regulatory pressures on lending practices and capital should help moderate the growth in property prices and household debt."

Financials shares weighed on the benchmark share index S&P/ASX 200 .AXJO on Monday with insurers AMP AMP.AX and QBE QBE.AX leading the losses.

Macquarie was trading down 1.7 percent, AMP AMP.AX slipped 3.4 precent while QBE QBE.AX was off 0.9 percent.

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