Australian Unity Bank Ltd.

Our stable outlook on the ratings on AUB reflects our expectation that AUB will remain a strategically important part of the broader Australian Unity Ltd. (AUL) group, as apparent in the group's supportive approach to AUB's growth aspirations. In addition, we expect the AUL group's credit profile to remain unchanged in the next two years. Alternative scenario: We see a one-in-three possibility that Australian banks will face reduced industry risks in the next two years. If that occurs, we expect to revise our assessment of AUB's stand-alone credit profile (SACP) to 'bbb' from 'bbb-'. Nevertheless, we expect to keep our long-term issuer credit rating on AUB unchanged at 'BBB+' in this scenario, reducing the uplift in our issuer credit rating

...We expect the Australian Unity Ltd. (AUL) group would provide extraordinary support to AUB in most circumstances, if needed. Consequently, the rating on Australian Unity Bank Ltd. (AUB) benefits from two notches of uplift above the standalone assessment. This reflects our view that AUB is an important part of the diversified AUL group. In our view, AUB's lack of scale and profitability constrains its ability to compete in a weak operating environment. AUB and the broader mutual sector are price-takers in their key operations of funding mortgages with deposits in Australia. Consequently, we view mutual lenders (including AUB) susceptible to heavy price competition from Australia's largest and most profitable banks. We expect this would be particularly evident in a protracted period of adverse operating conditions. AUB's capitalization is the lender's key standalone credit strength. As of June 30, 2020, our risk-adjusted capital (RAC) ratio was 17.8%. AUB's capitalization is high and affords...

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