Shares in Australia's big four banks have fallen after Moody's cut their long-term credit ratings due to risks associated with the local housing market.
Commonwealth Bank, ANZ, National Australia Bank and Westpac have all fallen after Moody's called out the high levels of household debt that have resulted from spiralling house prices in the core Sydney and Melbourne markets.
Westpac was the biggest faller with a 1.9 per cent decline, and the other three majors dropped by between 0.7 and 1.3 per cent.
Deutsche Bank analysts Andrew Triggs and Anthony Hoo said the downgrade brought Moody's ratings in line with those of Standard and Poor's and Fitch, with few implications for funding costs.
"We still see some chance that S&P downgrades the majors due to either a sovereign rating downgrade or a reduction in government supportiveness," they wrote in a client note.
They estimate that could result in a one or two per cent reduction in net profit over "a number of years".
The lenders were among 12 institutions to have their long-term ratings cut by Moody's.
"Elevated risks within the household sector heighten the sensitivity of Australian banks' credit profiles to an adverse shock, notwithstanding improvements in their capital and liquidity in recent years," Moody's said in a statement on Monday.
"While Moody's does not anticipate a sharp housing downturn as a core scenario, the tail risk represented by increased household sector indebtedness becomes a material consideration in the context of the very high ratings assigned to Australian banks."
The long-term ratings of CBA, NAB, ANZ and Westpac were downgraded to Aa3 from Aa2, and their baseline credit assessments to a2 from a1.
Their short-term ratings were unchanged.
Bendigo and Adelaide Bank, Heritage Bank, ME Bank, Newcastle Permanent Building Society, QT Mutual Bank, Teachers Mutual, Victoria Teachers Mutual, and Credit Union Australia Limited were also downgraded.
Standard and Poor's in May downgraded a wide range of Australian lenders, except for the big four, whose capital requirements will soon be updated by the Australian Prudential Regulatory Authority.
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