Yet, rising tech risks and economic uncertainties could test the sector's resilience
Australian banks are likely to keep credit losses low over the next two years, at around pre-pandemic levels of 15 basis points, according to S&P Global Ratings’ 2025 outlook report.
“We believe that relatively low unemployment, modest economic growth, and a change in spending patterns will shield borrowers against a high interest burden,” said Nico DeLange (pictured above), primary credit analyst at S&P Global Ratings.
The report also highlights that the Australian banking sector benefits from strong institutional and governance standards, which have helped to reduce industry-wide risks.
“We consider the risk of regulatory lapses to be low,” DeLange said. “Simplified business models and advances in risk management have also contributed to this improvement. We assess the institutional framework for the banking industry in Australia at the lowest risk level on our scale, in line with that in Canada, Hong Kong, and Singapore.”
On the housing market, S&P expects house price growth to remain moderate in the short term due to affordability challenges, a slight increase in unemployment, and high interest rates. However, in the longer term, the credit rating agency anticipates that potential rate cuts and a continued imbalance between housing supply and demand will drive house price growth above inflation.
“Lending standards remain conservative,” DeLange said. “We believe underwriting standards will remain conservative and banks will continue to price rationally for risks, affording the sector some buffer for unexpected situations.”
Australian banks’ earnings are also expected to remain strong compared to global peers.
Despite the generally positive outlook, S&P warned of risks tied to economic uncertainties, including persistent inflation, high interest rates, and soft consumer and business confidence. Some households and businesses could face difficulties in servicing their debt, especially those with high leverage or loans taken out when property prices were near peak levels. However, S&P believes these vulnerable borrowers make up only a small portion of banks’ loan portfolios.
The report also flagged growing technology risks, particularly from cyber threats.
“Accelerated digitalisation has increased such risks, especially those stemming from third parties, and could lead to more severe cyberattacks that trigger higher losses,” DeLange said.
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