Moody's: Australian banks face rising challenges

In its latest report on the Australian banks, titled, "Australian Banks: Rising Leverage And Cyclical Challenges Pose Risks”, the US ratings agency, Moody's Investors Service, highlights growing challenges to the country’s banks in light of increasing household leverage and persistently low interest rates.

Key Quotes:

"These headwinds could, over time, put pressure on the credit profiles of Australia's major banks, particularly in the context of their very high ratings."

"Whilst solvency and liquidity buffers have improved in recent years, the path of future balance sheet strengthening is likely to be slower than in previous years -- at a time when risks continue to rise."

“The weak state of the operating environment is reflected in Australia's accommodative monetary policy, characterized by a historical low in the Reserve Bank of Australia's (RBA) policy rate. This is likely to persist over the next 12 months. “

“The prolonged period of low interest rates will over time negatively impact the banks' net interest margins. Australia's major banks have to date managed to preserve margins through strong pricing power.”