Australia’s major banks face a slowdown in earnings growth over the rest of 2016, according to analysis by Moody’s Investors Service.
The first half results of ANZ, NAB and Westpac, plus a quarterly trading update from the Commonwealth highlight more difficult operating conditions, resulting in a sharp rise from a low base in large, single-name corporate loan impairments.
Combined cash earnings for the four fell 2.5% to $14.81 billion for the latest half-year.
Moody’s analyst Ilya Serov says the banks face multiple headwinds, including potential further stress in resources-related sectors and regions, a worsening outlook for residential property developments and continued stress in the New Zealand dairy sector.
“While the weakened outlook for corporate asset quality could put pressure on the major banks’ credit profiles, particularly in the context of their very high ratings, we nevertheless expect the banks to remain strongly creditworthy on an absolute and through-the-cycle basis,” says Serov.
The banks’ institutional businesses are under pressure, due to both increasing credit costs and weakening margins as competition, pushes down institutional net interest margins.
Moody’s says the banks appear to have reduced exposure to the resources sectors during the first half and commercial real estate exposures have been stabilising.
Moody’s says the banks’ residential mortgage portfolios continue to perform well, supported by record low interest rates.
“Nonetheless, over time, the weakened outlook for corporate asset quality could put pressure on major banks’ credit profiles, particularly in the context of their very high ratings,” Moody’s says.