Ratings agency Fitch has downgraded Commonwealth Bank’s outlook for its long-term debt default risk from stable to negative.
Fitch reaffirmed CBA’s default rating but says its revision of the outlook to negative reflects the bank’s “risks in remediating shortcomings” in governance following a highly critical report on its culture and governance by the financial regulator.
The Australian Prudential Regulation Authority released a report on the bank last week that slammed CBA’s board, management and company culture for being complacent, insular and blinded to risks as profits continued to grow.
APRA now requires CBA to have an extra $1 billion in regulatory capital and to take remedial action in implementing its report’s 35 recommendations.
Fitch says it is concerned management’s focus may divert from ongoing operations which will increase costs and lead to a weaker financial position for the bank.
“There is also a risk that ongoing inquiries into the sector, including the Royal Commission, identify additional shortcomings,” a statement from Fitch Ratings said.
“If this occurs, it may leave CBA more susceptible than peers to a weaker operating environment.
Fitch said it revised the outlook because shortcomings of CBA in risk appetite, management and strategy were “more widespread” than previous assessments had shown.
There are also a number of external factors that could lower the bank’s rating in future, including household debt risks, potential sharp rises in interest rates and deterioration in funding and liquidity for banks.
Increased competition from non-bank lenders, particularly in the digital space, may also weigh on CBA’s future rating, Fitch added.
Shares in CBA were up 18 cents, or 0.3 per cent, to $72.94 at 1438 AEST in a higher overall Australian market.