SYDNEY (3/6/09)--Moody's Investors Services says it has adjusted the Australian credit union sector's credit outlook rating to negative, with consolidation in the industry remaining the most dynamic of all Australian deposit-taking institutions (ADIs). The outlook applies across the sector, as funding pressures increase from strong retail deposit competition and credit quality weakens, reflecting the current economic environment, said Moody's Sydney office (The Asian Banker Interactive Feb. 28). Marina Ip, assistant vice president in Moody's Sydney office, said larger credit unions have more robust balance sheets and are likely to withstand funding pressures and erosion of net interest margins. However, smaller institutions may not survive the environment without further consolidation, Ip said. The report said funding pressures are more evident, with strong competition for retail deposits coming from ADIs such as banks that are aggressive in pricing strategies to attract new deposits. However, the government's guarantee of deposits in October 2008 should reinforce confidence in smaller ADIs such as credit unions, Moody's said. "With the 10 largest credit unions averaging non-performing loans to gross loans at 0.21% and nonperforming loans to equity and loan loss reserves at 2%, the [credit union] sector remains within Moody's highest category for asset quality," said Ip.