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Bank profit growth to slow

Bank profit growth to slow

(25 March 2008 – Australia) In a review of Australia’s financial institutions, Standard & Poor’s has indicated that profit growth for Australia’s big banks will slow. S&P indicated that higher funding costs will also result in a slow down in balance sheet expansion, despite an otherwise strong position.

The big four banks, which have been reaffirmed as AA rating banks, should not experience a deteriorated credit profile, while lenders in the BBB category could feel a greater impact.

S&P indicated a number of reasons for the strength of the big banks.

Firstly, the industry’s bad and doubtful debts are likely to be lower than similarly rated international banks.

Also, S&P analyst Sharad Jain indicated that most financial institutions were proactively managing the wholesale funding challenges present in the current market.

He also said that with market uncertainty set to continue, a downside outlook has been factored into ratings.

However, he said that the big four banks were well placed to cope with this due to their diverse funding sources and earnings.
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