Australian Unity Bank Ltd.

Our stable outlook on AUB reflects our expectation that the mutual bank will remain a strategically important part of the broader AUL group, evidenced by 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 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 on AUB above the bank's SACP to one

...We expect Australian Unity Bank's (AUB) parent, the Australian Unity Ltd. (AUL) group, to provide extraordinary support to the bank in most circumstances, if needed. Consequently, the rating on the Australia-based mutual bank benefits from two notches of uplift above the stand-alone credit profile (SACP). 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. 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) as susceptible to heavy price competition from the country's largest and most profitable banks. AUB's capitalization remains the lender's key stand-alone credit strength. As of June 30, 2021, our risk-adjusted capital (RAC) ratio for the mutual bank was 18.8%, above our threshold level of 15% for a strong assessment. AUB's capitalization is high...

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