OREANDA-NEWS. S&P Global Ratings today said it had affirmed its 'AA-' long-term and 'A-1+' short-term counterparty credit ratings on ASB Bank Ltd. (ASB). The outlook on the long-term counterparty credit rating remains negative.

The ratings on ASB remain equalized with those on its parent, Commonwealth Bank of Australia (CBA, AA-/Negative/A-1+), reflecting our view that ASB is integral to the CBA group's current identity and future strategy. We consider that CBA is likely to provide timely financial support to ASB under any foreseeable circumstances, if needed. The outlook on the long-term counterparty credit rating remains negative.

We have revised our assessment of the stand-alone credit profile (SACP) of ASB to 'bbb+' from 'a-'. The revision reflects our view that economic risks facing banks operating in New Zealand have heightened as a result of continued strong growth in residential property prices, nationally resulting in an increase in the risk weightings we use in the computation of our risk adjusted capital ratio (see "New Zealand Financial Institution Ratings Unchanged Despite Property Price Concerns," published Aug. 23, 2016). In our view, given the increase in the risk weightings, ASB's forecast RAC ratio would now be lower and would likely fall below 10% compared to our previous forecast range that was above 10%.

The negative outlook on ASB reflects that on its parent bank, CBA, and our view that ASB is a core subsidiary of the group. In our view, a weakened commitment from the parent, a dilution in shareholding, or a reduction in ASB's importance to group strategy may trigger a review of its core subsidiary status, which could result in a lower rating.

We would expect to lower the rating on CBA (and consequently ASB as a core subsidiary) if we lowered the long-term local currency sovereign credit rating on Australia to 'AA+' from 'AAA' and our view of the SACP of CBA remained unchanged. In our view there is at least a one-in-three chance that we could lower the sovereign rating within the next two years.

We could revise the outlook on CBA (and consequently ASB as a core subsidiary) to stable if we revised the outlook on the local currency sovereign credit rating on Australia to stable.