S&P affirms the big four 06 July 2009 4:45PM Philip Bayley The week before last Moody's reiterated its negative outlook on the Australian banking system, and last week Standard & Poor's followed and affirmed the 'AA/Stable/A-1+' ratings assigned to the four major Australian banks. S&P acknowledged that the banks are likely to face significant challenges in the next two years due to the global economic downturn but expects that the banks will continue to generate satisfactory earnings and keep credit losses well under control. The banks are also expected to have adequate capitalisation, well-managed funding and liquidity (notwithstanding their dependence on offshore wholesale funding), and conservative risk appetite.S&P observed that a key factor underpinning the affirmation of the ratings is the more traditional retail and commercial banking model adopted by the banks that supports their income stability. The contribution of trading income or losses to the banks' earnings is small.However, S&P noted the ratings on the major banks are likely to come under pressure if credit losses increase materially, combined with additional stress in factors such as access to wholesale funding. Credit losses could significantly rise due to a deeper, more rapid, and longer economic recession than currently expected or even a worse-than-expected impact from a benign economic recession.