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Australia Banks Retain Negative Outlook
World Economy

Australia Banks Retain Negative Outlook

A leading credit ratings agency has maintained its negative scorecard for Australia’s banks, as their profitability is expected to slow down this year. That was the downbeat outlook given by Fitch since the nation’s banks are “significantly exposed” to residential mortgages, which made up 40-60% of their credit exposure in mid-2017, ABC.net reported. But when one considers that home loans account for nearly 70% of household debt—which in turn reached nearly 200% of disposable income—this is a potentially dangerous cocktail. “Combined with low wage growth and high underemployment, this leaves households susceptible to higher interest rates and deteriorating labor market conditions,” said Tom Roche, the analyst and lead author of the Fitch report. Fitch is betting that loan impairments for the banks will be on the rise this year. Given Australia’s official interest rate is at the historically-low 1.5%, there is potential for Australians to borrow further, which would take the nation’s record household debts even higher.

 

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