High unemployment and a slowing economy could put the brakes on profit growth for the big banks in 2015.
The current jobless rate of 6.3 per cent is expected to remain near decade-long highs, and subdued economic growth is unlikely to rebound, putting pressure on more customers to meet their repayments, ratings agency Fitch says in its annual outlook on the sector.
A subsequent rise in costs from bad debts will hamper profit growth for the banks, Fitch said, although the four major lenders will continue to post huge earnings, after amassing collective cash profits of almost $29 billion in 2013/14.
The soaring housing market is also likely to slow in the year ahead, meaning competition among the banks for new lending will remain fierce.
"This and an expected rise in impairment charges will likely mean lower profit growth in 2015," the agency said.
But the major lenders are expected to strengthen their financial positions in response to changes to international and local regulation.
Funding for loans is set to come from more stable sources, in response to new global banking rules, while the local financial sector inquiry has recommended higher levels of capital be held to mitigate risk.
But Fitch does not expect any major changes to the industry in 2015 as a result of the inquiry, the recommendations of which are now in the hands of the federal government.
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