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Australian banks’ outlook downgraded by Fitch

Australian banks’ outlook downgraded by Fitch

(17 January 2017 – Australia) Fitch Ratings Agency has revised its outlook for the Australian banking sector to negative amid concerns about rising household debt and pressures on the banks' profits.

The agency reasoned that the revision was based on rising house prices, growing underemployment in parts of the economy and the impact on the banks from China's worse-than-expected slowdown.

Fitch said a key driver for its outlook was rising household debt, which is sensitive to the possibility of any increase in interest rates and negativity in the labour market.

"We still think the labour market is in good condition but there are pockets of underemployment that are impacting affordability," Fitch director Andrea Jaehne said.

"Salaries are not increasing, therefore peoples' ability to repay loans becomes restrained. People are accepting lower paid jobs, or jobs that are three days a week instead of five."

According to the agency, banks' profit growth would likely continue to slow in 2017 due to low-interest rates, slow asset growth, higher funding costs and a rise in loan impairment charges.

It forecast the banks would also be under pressure to manage a rise in bad loans, particularly in the mining states of Western Australia and Queensland.

"There are more risks in the market, and the banks' profits are likely to slow because of the remaining low-interest rate environment," Jaehne added.

"There are too many indications that this year will not be as good as the previous year."

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