Outlook On Australian-Based Bank Of Queensland Ltd. Revised To Negative From Stable; Ratings Affirmed
MELBOURNE (Standard & Poor's) June 7, 2011--Standard & Poor's Ratings Services said today that it had revised its outlook on Bank of Queensland Ltd. (BoQ) to negative, from stable. At the same time, we affirmed BoQ's 'BBB+/ A-2' counterparty credit ratings. The negative outlook reflects Standard & Poor's view that there is a one-in-three chance of a downward rating adjustment within two years on BoQ. "Although BoQ's overall financial risk profile remains consistent with its current rating, the emergence of asset-quality pressure has increased the prospect that the bank's financial risk profile could weaken to a level no longer supportive of the current rating," said credit analyst Cynthia Goldszmidt. "This specific risk is the predominate factor that underpins our negative rating outlook, particularly given our view that BoQ's business-risk profile is constrained by the bank's geographic concentration, its meaningful appetite for acquisitions and increased focus on high-return businesses, and the potential susceptibility of its credit profile to a loss in investor confidence, noting that we have no immediate concerns in this regard." The long-term counterparty credit rating could be lowered by one notch to 'BBB' if BoQ were unsuccessful in stabilizing its level of nonperforming loans, which has been negatively affected by the emergence of problems in a small number of large commercial loans and a rising trend in its residential mortgage arrears. While there is a prospect that BoQ may take some time to exit some larger nonperforming commercial loans to help minimize its credit losses, the rating could also be lowered if BoQ did not progressively improve its key asset-quality metrics to a level more consistent with similar rated peers over the next 12-to-18 months. "The ratings could also come under downward pressure if our view of the bank's capital adequacy and financial flexibility weakened, including if the bank experienced challenges in translating its growth across higher-risk lending segments into bottom line profits, or if the bank suffered from a material disruption to its access to wholesale funding," said Ms. Goldszmidt. The rating outlook is likely to be revised to stable if key asset-quality indicators, which have been deteriorating, are stabilized and we gain confidence that asset quality returns to a level consistent with similar rated peers. Rating stability would also benefit from BoQ successfully improving its earnings to help offset our concerns about asset quality, particularly as it progresses its growth in higher-risk but higher-yielding lending segments. The issuer credit ratings on BoQ reflect our view of the bank's sound asset quality, which, notwithstanding its recent deterioration, is supported by a high proportion of low-credit-risk residential lending exposure, sound capitalization, and the bank's good market position and brand in its Australian home State of Queensland. These strengths are moderated by our view that BoQ has a high appetite for growth through acquisitions, plus its material exposure to confidence-sensitive short-term wholesale funding. Furthermore, we will monitor the bank's concentration in the Queensland property sector, noting that 61% of its exposures are in Queensland.
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
| Primary Credit Analyst: | Gavin Gunning, Melbourne (61) 3-9631-2092; gavin_gunning@standardandpoors.com |
| Secondary Contact: | Cynthia Goldszmidt, Melbourne 61-3-9631-2072; cynthia_goldszmidt@standardandpoors.com |
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