From the Fitch Outlook report for the Australian banking sector.
- Fitch Ratings has revised the sector outlook on Australia's banking sector
- To negative from stable
Change in the sector outlook reflects an increase in macroeconomic risks & pressure on profit growth:
- Household debt is high & rising relative to disposable incomes
- Making borrowers sensitive to changes in the labour market and interest rates
Fitch's rating outlook for Australian banks remains stable
- However, the ongoing rise in household debt and house-price growth heightens the banking system's sensitivities to a sharp correction if labour market conditions and interest rates were to change
- In addition, a worse-than-expected slowdown in China's growth would negatively impact Australia's economy given the countries' strong economic ties.
- These scenarios - although not our base case - could jeopardise the banks' strong asset quality and profitability, and weaken capitalisation
- A prolonged global funding market disruption could place significant pressure on the banks' balance sheets despite the improvements in liquidity.
