Major Australian banks Westpac and ANZ have had their outlook revised to “negative” from “stable” by Fitch Ratings.

In a report with Reuters, the ratings agency said the main reason for the change of Australia’s second and third largest lenders’ outlooks was greater capital requirements sought by the prudential regulator.

As previously reported, the Australian Prudential Regulation Authority (APRA) advised ANZ, National Australia Bank (NAB) and Westpac to increase their minimum capital requirements of $500 million each, until the banks complete their planned remediation to strengthen risk management, and close gaps identified in their self-assessments.

Now, Fitch has said the lender’s increased focus on compliance and operational concerns may lead to diversion of resources from operations, which could ultimately weaken earnings relative to peers. Fitch also noted the additional capital requirements should remain manageable but indicated material shortcomings in operational risk management which were not aligned with the assessment it had previously incorporated into its ratings.

Fitch affirmed both banks’ ratings at “AA-.” It also revised to “negative”, from “stable”, the outlook for ANZ’s unit in New Zealand, which has been in the spotlight as regulators there ramp up pressure on the lender to improve internal risk controls and governance.

Meanwhile, ANZ, in a statement, said the change in outlook was consistent with that of the other three of Australia’s Big Four banks.