ROOT
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.”
RELATED ARTICLES
About the author
About the author
Earn
New Business Boom: Australia’s Top Ten Suburbs Lead Entrepreneurial Growth
Australia's entrepreneurial landscape is witnessing a remarkable transformation, with the latest data from the Lawpath New Business Index highlighting a significant surge in new business registrations ...Read more
Earn
Unlocking success: How tiny habits can make or break your career trajectory
Career plateaus rarely begin with a market shock; they start with tiny, repeated choices—avoiding change, outsourcing the hard calls, neglecting pipeline hygiene. In a market where distribution, data ...Read more
Earn
Unlock your potential by transforming hidden habits into success
Self-sabotage isn’t a character flaw — it’s an operating model failure. As pressure, complexity and AI-driven change intensify, the cost of avoidable behaviours (avoidance, over-delegation, context ...Read more
Earn
Australian labour market shows signs of strain amid global economic shifts
In the latest economic data release, Australia's labour market is exhibiting signs of strain, despite maintaining a relatively low unemployment rate. According to Krishna Bhimavarapu, APAC Economist ...Read more
Earn
Australia’s entrepreneur boom: August 2025 breaks records with over 100,000 new ABNs
Australia is witnessing an unprecedented surge in entrepreneurship, with the latest figures revealing a record-breaking number of new business registrations in August 2025. According to the newly ...Read more
Earn
Beyond the cash rate: How affordability reshaped Australia’s property playbook in 2025
Australian buyers are less fixated on interest rates and more constrained by affordability, a pivot that is quietly rewriting strategies for banks, developers and institutional investorsRead more
Earn
Australia’s rate cut revealed: What it means for property, profits and the months ahead
The RBA’s 25-basis-point cut to 3.6% extends the easing cycle and resets the calculus for households, lenders and property operators. Expect a faster spring selling season and a sharper rate war, but ...Read more
Earn
Beyond the sticker price: decoding a property’s real value in a volatile market
As prices in several Australian cities keep defying slower growth and higher rates, the question isn’t what a property costs—it’s what it’s truly worth. Value today is a stack: cash flows, replacement ...Read more
Earn
New Business Boom: Australia’s Top Ten Suburbs Lead Entrepreneurial Growth
Australia's entrepreneurial landscape is witnessing a remarkable transformation, with the latest data from the Lawpath New Business Index highlighting a significant surge in new business registrations ...Read more
Earn
Unlocking success: How tiny habits can make or break your career trajectory
Career plateaus rarely begin with a market shock; they start with tiny, repeated choices—avoiding change, outsourcing the hard calls, neglecting pipeline hygiene. In a market where distribution, data ...Read more
Earn
Unlock your potential by transforming hidden habits into success
Self-sabotage isn’t a character flaw — it’s an operating model failure. As pressure, complexity and AI-driven change intensify, the cost of avoidable behaviours (avoidance, over-delegation, context ...Read more
Earn
Australian labour market shows signs of strain amid global economic shifts
In the latest economic data release, Australia's labour market is exhibiting signs of strain, despite maintaining a relatively low unemployment rate. According to Krishna Bhimavarapu, APAC Economist ...Read more
Earn
Australia’s entrepreneur boom: August 2025 breaks records with over 100,000 new ABNs
Australia is witnessing an unprecedented surge in entrepreneurship, with the latest figures revealing a record-breaking number of new business registrations in August 2025. According to the newly ...Read more
Earn
Beyond the cash rate: How affordability reshaped Australia’s property playbook in 2025
Australian buyers are less fixated on interest rates and more constrained by affordability, a pivot that is quietly rewriting strategies for banks, developers and institutional investorsRead more
Earn
Australia’s rate cut revealed: What it means for property, profits and the months ahead
The RBA’s 25-basis-point cut to 3.6% extends the easing cycle and resets the calculus for households, lenders and property operators. Expect a faster spring selling season and a sharper rate war, but ...Read more
Earn
Beyond the sticker price: decoding a property’s real value in a volatile market
As prices in several Australian cities keep defying slower growth and higher rates, the question isn’t what a property costs—it’s what it’s truly worth. Value today is a stack: cash flows, replacement ...Read more
