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Bank balance sheets stronger, can withstand shocks: Moody’s
The Australian 5:12pm December 8, 2016
Daniel Palmer
Australia’s big banks have strengthened their balance sheets enough to counter any near-term shocks, Moody’s contends, as a series of headwinds threaten asset quality metrics.
In its latest report on the sector, the ratings agency noted bad loans were on the rise at the big four banks through the six months to September 30, largely due to commodities-exposed sectors, but funding profiles still improved as banks adapted to more stringent regulatory requirements.
Distressed loans could yet further swell in the months ahead, Moody’s added, given headwinds from underemployment and weak wages growth, a weaker outlook for residential property building, struggles in the dairy sector and stress in resource-related regions, which has seen arrears rates jump in areas like the Pilbara.
More broadly on the housing market, the ratings agency reiterated that swelling prices could pose a threat to the banks in the years ahead.
“Housing risks remain elevated as house prices continued to appreciate in the key Sydney and Melbourne markets, which eroded modest improvements in housing affordability,” the note read.
However, the laundry list of challenges appear to pose no risk to the credit ratings of the major banks in the near-term.
“We expect that asset quality will continue to be supported by low interest rates, but that gradual pressure will be exerted by multiple headwinds,” Madhavi Ramanayake, a Moody’s associate analyst, said.
“However, the banks are well capitalised to absorb any losses.”
