Moody's on Australia also now too: Australian banking system outlook stable despite a challenging operating environment

From Moody's report "Banking System Outlook: Australia," which is an overview of credit trends affecting the banking system in the next 12-18 months.

Any bolding is mine ...

  • Outlook for Australia's banking system is stable despite, against an increasingly challenging operating environment.
  • "Our expectation is that economic growth will slow on subsiding investment in the resources sector. Rising imbalances in the housing market are another notable downside risk over the next 12-18 months," says Ilya Serov, a Moody's Vice President and Senior Credit Officer.
  • "However, Australian banks should retain their strong credit profiles against these potential challenges, as they continue to benefit from their entrenched market power and healthy balance sheets," notes Serov.

Australian economic growth will remain under pressure from falls in resources investment and the terms of trade as well as a subdued outlook for broader business capital expenditure

  • Moody's central scenario assumption of below-historical-trend GDP growth of around 2% for 2015 and 2.5% in 2016

Monetary policy has been accommodative

  • Interest rates likely to remain at record lows for the foreseeable future
  • Supporting the non-mining sectors of the economy.
  • "With respect to the housing sector, we see the strong appreciation in housing prices, particularly in Sydney and Melbourne, as a key and rising tail risk for the Australian banking system," says Serov, adding, "While house price appreciation has not been accompanied by a broad-based relaxation in lending standards, the sharply increased proportion of residential investment lending over the past 18 months represents a material downside risk."
  • "In this context, measures taken by the Australian Prudential Regulation Authority (APRA) aimed at slowing the growth in investment lending and at ensuring underwriting standards remain prudent, and the recent steps taken by a number of banks in this respect, are an important credit support for the system, although they may take some time to bear fruit," says Serov.

Expects the banks' financial metrics to remain broadly healthy, thereby supporting the stable outlook

  • The challenges of Australia's economic transition will exert incremental pressure on asset quality metrics, and push loan impairment charges moderately above the current low levels
  • But, any increase in net credit costs will be contained at a level that is well below the long-run average, tempered by the country's record low interest rates and the healthy state of Australian corporate balance sheets.
  • Australian banks' capital levels will strengthen and remain strong relative to their global peers, as their capital management will increasingly take into account current regulatory reforms under the aegis of the Basel Committee on Bank Supervision and Australia's Financial System Inquiry
  • In addition, the banks' liquidity and funding profiles will remain stable. Since the 2008-09 global financial crisis, Australian banks have materially improved their funding profiles with a sharp reduction in their reliance on short-term wholesale funding.