May 7, 2018 / 3:10 AM / 6 months ago

Fitch downgrades Commonwealth Bank's long-term debt default outlook

A man uses a Commonwealth Bank of Australia ATM in Sydney, Australia, April 19, 2018. REUTERS/Edgar Su

(Reuters) - Fitch Ratings on Monday downgraded its outlook on Australian lender CBA’s (CBA.AX) Issuer Default Rating (IDR) to ‘negative’ from ‘stable’, citing risks associated with ongoing inquiries into the sector that it says may leave CBA in a weaker operating environment than its peers.

The rating agency, however, affirmed the IDR at ‘AA-‘ saying it expects the lender “will maintain its strong franchise and sound financial profile despite negative findings from an independent prudential inquiry into its governance, culture and accountability”.

Australia’s financial sector has been rocked by evidence of wrongdoing revealed by a powerful independent inquiry established by the federal government, following a series of scandals at CBA and other big banks.

Australia’s banking regulator last week also slapped an extra A$1 billion ($754 million) capital requirement on CBA, as it released a scathing report into how the lender allowed money laundering to flourish.

The same week the bank was forced to reveal that it had lost records of 20 million accounts.

“We believe the initially identified shortcomings of CBA, being risk appetite as well as management and strategy, are more widespread than we had incorporated into the previous assessment of these factors,” Fitch said.

The quasi-judicial inquiry has also led S&P Global to say the credit worthiness of Australia’s largest wealth manager AMP Ltd (AMP.AX) may be downgraded to ‘A-‘ from ‘A’ if damaging revelations of the firm’s misconduct affects its core wealth management business or if the risk of fines and legal actions increases materially.

Reporting by Susan Mathew in Bengaluru; Editing by Richard Pullin

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