Moody's Rating Service has its upgraded its long-term rating for Bank of Queensland to 'A3' from 'Baa1'. This decision follows Standard & Poor's upgrade of BOQ's long-term issuer credit rating to 'A-' in September last year.In a statement to the ASX yesterday, the bank's chief executive officer, Stuart Grimshaw, said he welcomed the Moody's decision as higher credit ratings improved BOQ's ability to compete against the four major banks."We are operating in a market where the Big Four banks hold considerable advantages over the rest of the market as their 'too big to fail' status significantly lowers their funding costs," he said."A higher credit rating goes some way towards partially reducing this funding cost gap and increases the range of funding opportunities available to us."Grimshaw said recent credit rating upgrades came after a period of intense work to rebuild BOQ's business fundamentals and set a foundation for growth.There was no change to Moody's short-term rating for BOQ, which was affirmed at 'P2' with a 'stable' outlook."The upgrade reflects BOQ's improved credit risk profile and balance sheet strength," said Frank Mirenzi, a Moody's vice president and senior analyst."BOQ's new management has taken proactive steps to address the bank's legacy asset quality issues, by selling large non-performing loans, raising capital and strengthening its balance sheet." "The benefits of these actions are now evident, with profitability restored and new non-performing loans trending lower. Both of these factors will enable the bank to generate capital and maintain its current strong capitalisation."Firenzi made similar observations on Suncorp-Metway's outlook, after his agency's decision yesterday to maintain the bank's A1 long-term and Prime-1 short-term ratings. "Evidence of a return to stable and sustainable profitability; an improving funding and liquidity profile; and a demonstrable commitment to maintaining a lower risk profile, would all provide future upward pressure on its stand-alone [Baa2] credit assessment", says Mirenzi. Moody's believes Suncorp's profit outlook is good, now that its non-core loans have largely been removed from its balance sheet. Over the current business cycle, both these Queensland based banks should be able to generate profitability returns in line with their Australian regional bank peer group and maintain Common Equity Tier 1 ratios of at least 8 per cent.However, Moody's noted that Australia's regional banks are at a structural profitability disadvantage to major banks due to their smaller size; higher funding costs; narrower product offering, in particular in fee-generating products; and weaker capital efficiency as a bank using the standardised approach to capital measurement.