Fitch Ratings predicts weaker growth for Aussie banks
(19 January 2016 – Australia) Global ratings agency, Fitch Ratings has predicted that Australian banks' profit growth is set to slow further this year, impacted by borrowers failing to re-pay loans on time.
The credit agency’s latest report says the cycle of very low loan losses, is on track to decrease in 2016, however stating that this change will be "manageable" for banks.
Fitch says a combination of higher charges for bad loans, increasing competition for borrowers, and higher funding costs will result in softer profit growth.
"Profit growth is likely to slow due to ongoing asset competition, higher funding costs, and an increase in loan-impairment charges. Improvements in cost management are likely to be offset by increased investment in technology," Fitch said.
Last year, average profit growth for the “Big Four” was 5.3 percent, with earnings falling 4.7 percent in the second half.
The report also underlined the high level of household debt as another source of economic pressure for banks.
The ratio of household debt to household disposable income - a key gauge of households' indebtedness - had climbed to a record high of 184.6 percent in September, figures from the Reserve Bank show.
"High debt levels make households vulnerable to a sharp increase in interest rates and unemployment, which could weaken banks' asset quality," Fitch said.
Fitch also highlighted that banks were now better prepared to absorb any increase in bad debt following capital raising of A$18 billion by the Big Four last year.
Additionally, tighter credit standards causing a decrease in the amount banks are willing to lend to some home-loan borrowers - were also a positive for banks, the report found.
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