Big Three ratings agencies downgrade Australian banking outlook

The outlook for Australia’s banking sector has been downgraded to negative by Fitch. 

Concerns about rising household debt while the labour market deteriorates has led the ratings agency to a gloomier view of banks’ profitability in 2017. 

“Household debt is high and rising relative to disposable incomes, making borrowers sensitive to changes in the labour market and interest rates. Profit growth is likely to continue to slow in 2017, reflecting low interest rates, slow asset growth, competition for assets and deposits, higher funding costs, and a rise in loan-impairment charges,” the report said. 

Fitch said property prices would remain high by international standards and growing, only at a slower rate than in 2016. 

The report also noted that sluggish Chinese demand for coal and iron would negatively impact the dollar, and hurt profits and growth across the board—particularly in mining states Queensland and Western Australia. 

Fitch’s downgrading means that all three major ratings agencies have darkened their view of Australian banking for 2017. Moody’s downgraded their outlook in August last year, over concerns about persistently low interest rates and bad debts. Standard & Poor’s cut its outlook in October for second-tier banks, highlighting high household debt levels rising unsustainably. 

What these downgrades may mean for Australian banks and whether they matter is unclear.