Australia’s banks are well positioned despite global market turmoil and concerns over the Chinese economy but profit growth is set to slow in 2016, according to a leading ratings agency. Fitch Ratings expects increased funding costs, pressure on cost management and a modest increase in loan impairment charges to put a lid on profit growth.
The big four of Commonwealth Bank, ANZ, National Australia Bank and Westpac reported combined full year cash earnings of $30 billion in 2015. “Operating revenue growth is likely to be affected by a softer operating environment than in 2015, regulatory changes to the banks’ investor lending, which is likely to affect lending volume, and low interest rates combined with continuing slow credit growth,” Fitch said in a report released on Tuesday.
Fitch predicted that banks will focus on expenses to offset some revenue pressures, but that the sector’s cost to income ratio is set to weaken moderately despite those efforts. Even so, Fitch said its outlook for the sector remained stable. “We expect strengthened capitalisation and recently tightened underwriting standards to offset slower profit growth and modest asset-quality pressure,” Fitch said.
