Earn
More pain for the big 4 banks
Australian banks are confronting a protracted recovery from the COVID-19 economic downturn, which will hurt the big banks’ profitability, although strong credit buffers should protect the businesses, a rating agency has found.

More pain for the big 4 banks
Australian banks are confronting a protracted recovery from the COVID-19 economic downturn, which will hurt the big banks’ profitability, although strong credit buffers should protect the businesses, a rating agency has found.

According to S&P ratings, low interest rates, weak credit growth and a drop in fees all threaten the banks’ future earning potential.
However, despite a weakening bottom line, the banks are not in financial trouble.
“Still, we believe banks’ reduced earnings should remain adequate to absorb elevated credit losses,” said S&P Global Ratings credit analyst Sharad Jain.
Elevated unemployment, weak sentiment, net outward immigration and restrictions impacting home inspections and sales will drag down house prices by 10 per cent from the peak in April-May 2020, while the combination of high unemployment and fall in home prices will lead to higher credit losses given that home loans make up 60 per cent of bank loan books.
And while the recovery is underway, banks will still struggle to regain pre-COVID earnings metrics despite receding credit losses.
“Many businesses and households will suffer from the structural changes to the economy due to the downturn, in our view,” S&P said.
“Consequently, a large number of borrowers will struggle to meet their financial commitments even when the broad-based recovery takes place.”
A delay in finding a vaccine, more COVID-19 outbreaks and an escalation in the strategic confrontation between the US and China could also prolong or deepen the economic downturn beyond S&P’s base case.
“Nevertheless, we believe that Australian banks should be able to preserve their creditworthiness in the next two years, despite the unprecedented economic disruption due to the COVID-19 outbreak,” Mr Jain said.
“A downgrade on the Australian sovereign remains the main risk to our ratings on the four major Australian banks and Macquarie Bank Ltd.”
About the author

About the author


Earn
Will your job be in demand in 2021?
COVID-19 has brought significant disruption to the economy, and with it, there has been permanent changes to the jobs landscape. So, what jobs will be on the rise this year? ...Read more

Earn
2021 new year, new you: How well does your portfolio stack up against your goals?
Markets in 2020 were challenging and unpredictable, but 2021 offers families an opportunity to review their portfolio and make sure they are still in alignment with their financial goals. Your life, a...Read more

Earn
nestegg’s top 10 most-read stories for 2020
From a global pandemic, economic recession, robodebt refunds and a US election, 2020 has been a huge year for finances in Australia. ...Read more

Earn
Why change is crucial for your career – even if you’re the boss
The proverb would have us believe, “Change is as good as a holiday”. ...Read more

Earn
How the IR reform bill could affect you: Job certainty or lower pay?
The government’s IR reform proposals are expected to be watered down as they make their way through Parliament, with business and unions at odds over some of the more contentious parts of the bill. ...Read more

Earn
Amid pandemic: Canberra bucks trend with continued growth
In comparison with the bigger capital cities like Sydney and Melbourne, Canberra stood in a better position during the initial impact of COVID-19, protected by its robust economy and unique job secur...Read more

Earn
Where have house prices increased more than 1,200%?
COVID-19 has been accelerating interest in regional Australia, as identified by REA Insights Regional Australia Report 2020. ...Read more

Earn
AFSA sounds dodgy adviser warning ahead of insolvency wave
The Australian Financial Security Authority has issued a warning around dodgy insolvency advisers ahead of an anticipated spike of bankruptcies. ...Read more

Earn
Will your job be in demand in 2021?
COVID-19 has brought significant disruption to the economy, and with it, there has been permanent changes to the jobs landscape. So, what jobs will be on the rise this year? ...Read more

Earn
2021 new year, new you: How well does your portfolio stack up against your goals?
Markets in 2020 were challenging and unpredictable, but 2021 offers families an opportunity to review their portfolio and make sure they are still in alignment with their financial goals. Your life, a...Read more

Earn
nestegg’s top 10 most-read stories for 2020
From a global pandemic, economic recession, robodebt refunds and a US election, 2020 has been a huge year for finances in Australia. ...Read more

Earn
Why change is crucial for your career – even if you’re the boss
The proverb would have us believe, “Change is as good as a holiday”. ...Read more

Earn
How the IR reform bill could affect you: Job certainty or lower pay?
The government’s IR reform proposals are expected to be watered down as they make their way through Parliament, with business and unions at odds over some of the more contentious parts of the bill. ...Read more

Earn
Amid pandemic: Canberra bucks trend with continued growth
In comparison with the bigger capital cities like Sydney and Melbourne, Canberra stood in a better position during the initial impact of COVID-19, protected by its robust economy and unique job secur...Read more

Earn
Where have house prices increased more than 1,200%?
COVID-19 has been accelerating interest in regional Australia, as identified by REA Insights Regional Australia Report 2020. ...Read more

Earn
AFSA sounds dodgy adviser warning ahead of insolvency wave
The Australian Financial Security Authority has issued a warning around dodgy insolvency advisers ahead of an anticipated spike of bankruptcies. ...Read more