Fitch: Australian banking sector on a negative outlook

Fitch rating agency is out with a note, warning that Australian banks are now on a negative outlook from stable. Fitch observes that the worsened outlook reflects an increase in macroeconomic risks and pressure on profit growth.

Key headlines

Household debt is high & rising relative to disposable incomes, making borrowers sensitive to changes in the labour market and interest rates

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.