Cuscal Ltd.

The positive outlook on Cuscal Ltd. reflects our view that there is a one-in-three possibility that Australian banks will face reduced industry risks in the next two years. We believe the Australian banking system's funding profile has been improving in the past 10 years on the back of growing customer deposits and falling offshore borrowing. In our view, the stronger systemwide funding metrics can be sustained despite a modest weakening in the next three years as the COVID-19-driven rise in customer deposits through 2020 unwinds and the Reserve Bank of Australia's (RBA) term funding facility matures. We expect Cuscal to maintain a very strong risk-adjusted capital (RAC) ratio above 15% over the next two years, resulting in good coverage of

...We expect Cuscal Ltd. to remain a systemically important component of Australia's payments infrastructure. The company has an embedded role as a payments services provider to Australian authorized deposit-taking institutions (ADIs) and continues to develop its business model to keep up with the fast-changing Australian payments sector. We factor in a moderate likelihood of extraordinary support from the Australian government into our rating on Cuscal. Strong capital levels and good risk management capabilities offset high operational risk exposure. Cuscal's high-volume switching and settlement services have material operational risk, in our view. However, we believe the company's experienced management team is capable of managing the operational risk. Moreover, Cuscal's strong capital levels could absorb losses, if required. Contractual deposits mitigate counterparty credit risk and provide a stable funding base. Cuscal's customers are contractually required to hold security settlement...

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