The outlook for Australia’s banking system is “stable” despite an increasingly challenging operating environment, according to a leading credit ratings agency.
A new report titled Banking System Outlook: Australia by Moody’s Investors Service provides an overview of credit trends affecting the banking system over the next 12 to 18 months.
The report highlights that the nation’s economic growth will remain under pressure from falls in resources investment and the terms of trade, as well as a subdued outlook for broader business capital expenditure.
However, Moody’s expects the banks’ financial metrics to remain broadly healthy.
“The challenges of Australia’s economic transition will exert incremental pressure on asset quality metrics, and push loan impairment charges moderately above the current low levels,” it said.
“But, any increase in net credit costs will be contained at a level that is well below the long-run average, tempered by the country’s record-low interest rates and the healthy state of Australian corporate balance sheets.
“Australian banks’ capital levels will strengthen and remain strong relative to their global peers, as their capital management will increasingly take into account current regulatory reforms under the aegis of the Basel Committee on Banking Supervision and Australia's Financial System Inquiry.”
In addition, Moody’s said the banks’ liquidity and funding profiles will remain stable, and the implementation of a statutory creditor bail-in regime is unlikely over the next 12 to 18 months.
“Since the 2008-09 global financial crisis, Australian banks have materially improved their funding profiles with a sharp reduction in their reliance on short-term wholesale funding,” it said.
“Moody’s continues to incorporate a very high level of government support in the senior debt and deposit ratings of Australia's major banks, and a moderate level of support in the ratings of the three regional banks, primarily in recognition of the authorities’ historical supportive stance and the incentives for support created by the system’s dependence on foreign funding.”