Moody's warns big four
Moody's says that Australian banks are facing a potential storm of increasing household leverage and persistently low interest rates, which are leaves the banks more sensitive to shocks.
“These headwinds could, over time, put pressure on the credit profiles of Australia's major banks, particularly in the context of their very high ratings,” says Frank Mirenzi, a Moody's Vice President and Senior Analyst.
“Whilst solvency and liquidity buffers have improved in recent years, the path of future balance sheet strengthening is likely to be slower than in previous years - at a time when risks continue to rise,” adds Mirenzi.
Moody's says that the weak state of the operating environment is reflected in Australia's accommodative monetary policy, characterised by a historical low in the Reserve Bank of Australia's (RBA) policy rate.
The analysts say this is likely to persist over the next 12 months.
The prolonged period of low interest rates will over time negatively impact the banks' net interest margins. Australia's major banks have to date managed to preserve margins through strong pricing power. However, they may be increasingly challenged to maintain them in the face of further interest rate cuts.
More details are available in the new report - "Australian Banks: Rising Leverage And Cyclical Challenges Pose Risks".