Fitch still negative on Aussie banks

Fitch Ratings, which has maintained its negative outlook on the ratings of Australia’s four largest banks due to uncertain environment, has said this will not be revised until early to mid-2021. 

The agency, which expected Australia's GDP would contract by 3.6% in 2020 under its base case before recovering by 3.9% in 2021, said it believed there was downside risk to its economic base-case forecast, despite the improving economic outlook. 

“We are likely to revise the operating environment factor outlook to stable should our base-case emerge, possibly in 1H21,” the agency said. 

“We also have a negative outlook on the 'a+' asset-quality scores across the banks to reflect the elevated risk of impaired loans significantly exceeding our base case. We think asset-quality could deteriorate further in 2021 following the unwinding of support measures and loan repayment deferrals.” 

However, Fitch said, the level of deterioration remained unclear as total deferred loans declined from peak levels and it could take a number of years before the elevated impaired loans were resolved which additionally stressed the magnitude of the economic shock. 

What is more, profitability would continue to be impacted in the next 12 months due to record-low interest rates, slowing credit growth and possible additional provisioning charges, but low-cost funding facilities provided by the central bank could provide some offset. 

“We maintain a negative outlook on banks' earnings and profitability scores, as the scores could be lowered if core metrics fall below levels commensurate with the current scores; ANZ and NAB at 'a' and CBA and Westpac at 'a+',” Fitch said. 

“We believe the major banks' capital buffers are commensurate with their risk profiles, although a moderate decline of the capital ratios is probable in the short term.  

“Banks' funding and liquidity profiles has been bolstered by high system liquidity deployed by the central bank; this should help them maintain their strengthened liquidity positions over the next 12 months, as they are unlikely to issue senior unsecured debt in the primary wholesale markets as a result.”