The ratings outlook bias for the pool of Asia-Pacific financial institutions covered by S&P Global Ratings skewed toward stable during the second quarter ended 30 June 2018. In the Australian sector, disclosures at the Royal Commission hearings have weakened the risk ratings of the systemically important banks.However, S&P reported that, as at 31 May 2018,  it had a net negative rating outlook bias of -6 per cent across a portfolio of over 300 rated financial institutions in 20 countries, an improvement from -10 per cent at the end of the first quarter.The improvement was mainly due to one factor - a positive ratings momentum for the issuer credit ratings on systemically-important Japanese banks following a similar rating action on the Japanese sovereign. These accounted for 15 of the 19 positive ratings changes in the quarter."Aside from this development, credit quality elsewhere across the sector was broadly unchanged," according to the S&P report."The more prominent key risks that threaten Asia-Pacific financial institutions' credit quality include high private-sector indebtedness, elevated property prices, and the potential for rising US interest rates," said S&P Global Ratings credit analyst Gavin Gunning.Any corrections to these factors, particularly if associated with a pullback in market liquidity, would likely lead to a revision of the S&P base case, with subsequent negative ratings momentum across the region, the report noted.Negative revisions to S&P's risk rating outlooks for systemically-important Australian banks reflect developments over the past two years in the sector, including information coming out of hearings at the ongoing Royal Commission. "[These] highlight some weaknesses in the effectiveness of regulation in the banking sector, and the conduct, governance, and risk appetite shown by Australian banks," the S&P report stated.There are additional pressures on the Australian sovereign creditworthiness and "a possible tempering of our current highly supportive opinion concerning the Australian government's tendency to support banks."In contrast, during the past quarter, S&P revised its economic risk trend for the Australian banking industry to positive from stable. "This reflects our expectation that the trend of an orderly unwinding of economic imbalances, including for high property prices and private sector indebtedness, should continue for at least the next year."