Moody's Investors Service has lowered its outlook on Australia's banks to negative from stable, warning of sluggish profit growth due to slow wage increases, record-low interest rates, strong lending competition and rising household debt.
The agency said the banks, whose credit ratings are among the highest in the world, could be hurt by an increase in problem loans among mining companies and households in mining-dependent states.
Moody's action came after Standard & Poor's in July also placed major Australian banks' AA- ratings on negative outlook, in a signal that a downgrade was possible.
Both agencies rate the banks one rung below the highest, triple-A, investment grade. A downgrade would make financing more expensive for banks at a time when regulators want them to put aside more cash to weather any repeat of the global financial crisis.
Australia's highly profitable "Big Four" banks - National Australia Bank, ANZ Banking Group, Westpac and Commonwealth Bank - emerged from the financial crisis relatively unscathed but are facing questions over their capital levels, slowing earnings growth and rising bad debts.
National Australia Bank, ANZ and Commonwealth acknowledged Moody's action on Friday, but noted in separate statements that the rating agency had reaffirmed their 'Aa2' credit rating.
"The outlook change reflects Moody's expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond," Frank Mirenzi, a vice president and senior analyst at Moody's, said in a statement. He noted that profit growth could slow and asset quality decline, and make banks and consumers more vulnerable to economic shocks.
"The strong price appreciation of residential real estate has been driving an increase in household debt to a record high," Mirenzi noted.
Earnings growth at the four major banks has already slowed after six straight years of record profit. Earlier this month, Commonwealth Bank posted its slowest earnings increase since a decline in 2009.
The four banks reported higher defaults in the June quarter with loans more than 90 days in arrears inching higher, largely led by mining- and dairy-related debts.
Moody's rates 14 commercial banks and mutual banks in Australia, and two foreign bank subsidiaries in the country. The 16 financial institutions accounted for 91 percent of total banking system loans as of May 30.