Ratings agency Fitch will likely release the credit rating of the big four Australian banks in April. On Monday, Fitch placed the AA ratings of the Australia and New Zealand Banking Group (ANZ), Westpac, National Australia Bank (NAB) and Commonwealth Bank of Australia (CBA) on ratings watch negative, which is a hint the four could be downgraded by one notch.

The review is part of Fitch's review of large global banks started in October. The review included the six largest Canadian banks.

On Dec. 2, Standard & Poor's downgraded the big four by one notch to AA- from AA, the first downgrade of Aussie banks in 20 years.

"Specifically, the (ratings watch negative) for the four major Australian banks largely reflects Fitch's view that despite significant improvements, these banks continue to have a weaker funding profile than other similarly rated peers," the Australian Broker News quoted Fitch.

Although Fitch compared the Canadian and Australian banking systems which the agency observed to have weathered the 2008 global financial crisis better than lenders in other nations, the agency said that the top six Canadian banks have stronger funding profiles.

In contrast, the big four borrow almost 50 per cent of their $1.5 trillion funds from the global markets. ANZ, Westpac, NAB and CBA account for almost three fourth of the country's banking sector.

The four rely on deposits for 54 to 65 per cent of their funding source and 20 per cent on term debt from offshore credit markets.

Fitch expressed concern that over 30 per cent of the big four's funding are sourced from short-term markets which are considered more volatile because of the European sovereign debt crisis which had caused borrowing cost to go up.

In the next few years, Australian banks need to refinance more than $114 billion borrowing with new funds at almost twice the cost of funds it got in 2009 when the federal government introduced the deposit guarantee. Fitch analysts said that the four would not likely find it easy to restructure their funding from short to medium-term.

The analysts pointed out that heavier dependence on overseas wholesale funding could place some risk on banks that are strong in other aspects such as profitability. In 2011, Australian banks earned over $25 billion in profit.

Fitch said that if the Aussie banks would be downgraded it would initially be applied on CBA, Westpac and NAB.

A report by the Centre for the Study of Financial Information and PricewaterhouseCoopers attributed the high level of anxiety among Australian bankers to the threat of another round of financial crisis worse than what happened three years ago, higher cost of longer-term funding and downgrade of global growth prospects by the World Bank and the International Monetary Fund.

Australian bankers registered a 3.28 anxiety level out of a maximum of 5 in the newly released Banking Banana Skins 2012 report, while the world average was 3.15.

Also contributory to the problems of Australian banks are the longer time it takes home loan borrowers to repay their mortgages, pressure to pass in full any overnight cash rate cuts made by the Reserve Bank of Australia, a threat of more competition from large Japanese banks which may offer lower loan rates and eat 5 to 10 per cent of the country's home loan market and more stringent regulations due to the forthcoming implementation of Basel III.

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