Fitch Ratings has revised its outlook on the Australian banking sector from stable to negative – a change driven by an increase in macroeconomic risks and pressure on profit growth.
In its report, 2017 Outlook: Australian Banks
, the agency revealed that while the outlook remains stable for banks across the country, rising household debt and increased house price growth means the banking system is more sensitive to sharp corrections in the labour market or if interest rates change.
With household debt skyrocketing relative to average disposable income, Fitch said that borrowers are also increasingly sensitive to market changes.
“These scenarios – although not our base case – could jeopardise the banks’ strong asset quality and profitability, and weaken capitalisation,” Fitch said.
“Profit growth is likely to continue to slow in 2017, reflecting low interest rates, slow asset growth, competition for assets and deposits, higher funding costs, and a rise in loan-impairment charges.”
The change in outlook comes after Moody’s shifted its outlook on the banking system from negative to stable in August last year while Standard & Poor’s changed Australia’s sovereign rating from stable to credit watch negative in July.
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