Australia’s major banks are set to retain their double-A long-term credit ratings despite a sharp rise in credit exposures for the two biggest banks during 2008/09.

Global ratings agency Standard & Poor’s (S&P) said the long-term credit ratings of Australia’s major banks will not change in light of the agency’s new framework for assessing capital adequacy.

S&P’s survey of 45 large international banks included Australia’s big four banks and found the average risk-adjusted capital (RAC) score to be more than three per cent lower than the average tier 1 capital ratio.

Capital adequacy levels reflect whether banks have enough funds to cover their credit exposures.

Australia’s prudential regulator requires banks and other authorised deposit-taking institutions (ADIs) to hold a set ratio, called tier 1, of capital to their risk-weighted assets to ensure their capital levels are sufficient to absorb unanticipated losses and provide a capital buffer.

In S&P’s view, the capital level for most global banks surveyed is a credit ratings weakness.

S&P said on Wednesday the credit rating of Commonwealth Bank of Australia (CBA), Westpac Banking Corporation, National Australia Bank (NAB), and ANZ Banking Group (ANZ) would remain at AA-Stable and were supported by very strong business and financial considerations, and the ability to raise capital.

S&P said while capital remains a neutral to negative rating factor for the majority of banks, capital was only a “slight” weakness to the rating profile of the local banks.

This was despite a 28 per cent hike in Westpac’s total credit exposures to $593.8 billion during the 12 months to September 30, and a 22 per cent jump in CBA’s credit exposures to $650.8 billion, also to September 30.

During 2008/09 Westpac acquired St George Bank and CBA acquired BankWest, with both major banks also taking on their subsidiaries’ credit exposures.

The credit exposures were reported by Westpac and CBA earlier this month and on Wednesday ANZ and BankWest followed suit, with ANZ disclosing a 4.6 per cent decline in total credit exposures to $510.87 billion for the 12 months to September 30.

BankWest’s total credit exposures reached $69.202 billion to September 30, up from $66.963 billion at June 30.

The credit exposures were made under internationally accepted reporting standards - Pillar 3 of Basel II.

Basel II is the capital adequacy framework for ADIs that adopt more advanced risk management approaches.

NAB has yet to made its Pillar 3 disclosures.

AAP