Moody's Investors Service says the possibility of a slowdown in credit growth could have profit implications
Moody’s Investors Service says tighter mortgage standards and a slowdown in credit growth amidst the ongoing royal commission scrutiny could have profit implications for the banks.
“Any slowdown in credit growth resulting from tighter mortgage underwriting requirements would hurt banks' profitability, if it occurs in conjunction with low interest rates, a rise in wholesale funding costs or an increase in bad debt charges,” says a new report from Moody’s, Banks — Australia: Royal Commission is risk to profitability but sector structure will support credit profiles.
“We expect banks to continue to strengthen their underwriting criteria, including the potential introduction of debt-to-income caps.”
But it also adds that the royal commission’s recommendations alone are unlikely to alter the concentrated structure of the banking system, “which offers favourable competitive dynamics for incumbent banks and this will continue to underpin the banks’ credit profiles”.
“That said, the status quo is not without risks.”
The Productivity Commission could make recommendations to call for a public policy that encourages more competition in the sector, the report says, and non-banks and fintechs will continue to grow their market traction in the long term.
