Australia's banks face the threat of higher funding costs, after Standard & Poor's downgraded the big four's credit rating outlook to "negative", a direct result of its action on the government's top-notch rating.

The global credit ratings agency on Thursday followed its move to cut its outlook to "negative" for the federal government's AAA rating with a similar move for the big four banks, Commonwealth Bank, National Australia Bank, ANZ Bank and Westpac.

The big four are among a small group of global lenders with AA- rating from S&P, which helps make them among the safest corporate borrowers in the world.

However, the banks' credit ratings are automatically raised by two notches because S&P assumes they would receive government support in times of financial stress. Action on the government's rating therefore tends to flow directly into the banks' ratings.