Via Forex Live:
From the Fitch Outlook report for the Australian banking sector.
- Fitch Ratings has revised the sector outlook on Australia’s banking sector
- To negative from stable
Change in the sector outlook reflects an increase in macroeconomic risks & pressure on profit growth:
- Household debt is high & rising relative to disposable incomes
- Making borrowers sensitive to changes in the labour market and interest rates
Fitch’s rating outlook for Australian banks remains stable
- However, the ongoing rise in household debt and house-price growth heightens the banking system’s sensitivities to a sharp correction if labour market conditions and interest rates were to change
- In addition, a worse-than-expected slowdown in China’s growth would negatively impact Australia’s economy given the countries’ strong economic ties.
- These scenarios – although not our base case – could jeopardise the banks’ strong asset quality and profitability, and weaken capitalisation
- A prolonged global funding market disruption could place significant pressure on the banks’ balance sheets despite the improvements in liquidity.
Meanwhile, the Australian Prudential Regulatory Authority (APRA) has today released a note explaining why it will not proceed with implementing a counter-cyclical capital buffer for the banks, claiming that there are not enough risks in the financial system to warrant the holding of extra capital.
In coming to its view, APRA noted that it had “not observed a change in the level of systemic risk that would necessitate a change in the level of the countercyclical capital buffer”, based on indicators like credit growth, asset price growth, lending standards, and financial stress. Thus, it has set the buffer at zero.
Martin North, for good reason, is clearly unimpressed:
So, everything is looking rosy, in their view. However, the high household debt to income ratio and the fact that debt servicing is supported by ultra low interest rates is not included adequately in their assessment – seems myopic in my view, but then this continues the regulatory group-think. In addition the use of “confidential quarterly survey data” highlights the lack of industry disclosure.
Yet another financial regulatory fail!
