CANBERRA: Australia’s banking system is one of six in the Asia Pacific carrying a negative outlook from Moody’s, although the ratings agency says risks are partly balanced by improving capital levels. Moody’s Investors Service says the outlook for banks in Asia Pacific for 2017 is negative, with problem assets set to rise and challenges in commodity markets. In Australia, banks face a deteriorating operating environment, declining asset quality due to high corporate debt levels, plus challenges to efficiency and profitability according to Moody’s assessment.
Six of 16 banking systems carry a negative outlook – up from three at the start of 2016 – with China, Hong Kong, South Korea, Mongolia and Singapore listed alongside Australia. “Problem assets will rise from a generally low level, due to previous rapid credit expansion, elevated corporate and household leverage in some economies, the ongoing recognition of credit problems, and challenges in commodities and cyclical industries,” Moody’s managing director Stephen Long said. “Foreign private capital flows will remain volatile in emerging Asia, pressuring domestic currencies and weakening operating conditions for the banks. And, property price increases in parts of Asia Pacific will further amplify credit risk for the banks.”
Moody’s said strong profitability will continue to be pressured by higher credit costs, although improving capital levels and strong funding and liquidity profiles will work in the banks’ favour. Total cash profit at Australia’s big four banks dropped about 2.3 per cent in 2015/16 to $29.64 billion, largely due to the cost of a major restructure at ANZ.
