Australia’s financial institutions continue to face risks to their creditworthiness in 2017. Increasing economic imbalances, pressures on sovereign credit quality, and potential weakening of sovereign supportiveness are the main reasons most of Australia’s banks and finance companies are on negative outlooks and face a potential one-notch rating downgrade. Nevertheless, S&P Global Ratings expects the performance of the banks to remain strong, supported by continued low credit losses on the back of a relatively benign economic outlook and the banking sector’s conservative risk appetite. We assess the economic risk trend for the Australian banking sector as negative. Economic risks that Australian banks face would increase, in our opinion, if we see a trend toward private-sector debt growth of more than five percentage points compared with GDP growth, or inflation-adjusted house prices growth of more than 4%.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
