"We revised the outlooks because we expect the economic strain stemming from the COVID-19 pandemic to put prolonged pressure on the asset quality and revenue of the banking groups," S&P said in a statement.
The revisions affect the ratings on core subsidiaries of Japan's three major banking groups and their holding companies, which are Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group, the rating agency said.
"Creditworthiness of the three banking groups has come under pressure as credit costs rise, unrealized gains on marketable securities fluctuate, and impairment risk grows," it said.
Under a stimulus package unveiled to combat the fallout from the virus, the government has urged financial institutions to offer loans at effectively zero interest to small firms suffering that are slumping sales from the pandemic.
The request exposes Japan's commercial banks, many of which were already faced with falling profits from years of ultra-low interest rates, to the risk of being saddled with huge bad loans that could erode their financial health.
The Bank of Japan warned in a report on Tuesday that the coronavirus pandemic, if prolonged, could trigger a negative feedback loop in which a worsening economy threatens to destabilise Japan's financial system.
(Reporting by Leika Kihara;Editing by Elaine Hardcastle)