Big banks face profitability pressure

by Julia Corderoy22 Aug 2016
Global credit agency, Moody’s, has downgraded its rating outlook for Australia’s big four banks from stable to negative, claiming margin pressure will erode profitability. 

The ratings agency maintained the sector’s Aa2 rating, however, it said the banks face weaker profit growth due to declining interest margins and a greater vulnerability to internal and external shocks.

There is an “expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond,” Moody’s said, “which could lead to a deterioration in their profit growth and asset quality, as well as an increase in their sensitivity to external shocks.”

In response to Moody’s action, Commonwealth Bank Chief Financial Officer, David Craig, said it reminds us that at times of global economic volatility, Australia's major banks are under intense scrutiny from ratings agencies and global funding providers. However, Craig said it also confirms that the Australian banking system remains among the strongest in the world

“Moody's emphasis on profitability highlights the importance of profit growth in maintaining banks' strength and the confidence of global funding providers.  It is this strength and confidence which enable the Bank to access and provide low cost funding for our customers,” he said.