Australia's major banks face soft profit growth amid growing macroeconomic risks linked to low interest rates and government tax policy, according to Fitch.
The credit rating agency believes low interest rates and government tax policies have likely contributed to risks that include rising household debt and diminishing housing affordability related to strong house price growth.
It highlighted continued challenges for Commonwealth Bank, Westpac, National Australia Bank and ANZ from the downturn in the resources sector, which has already led to an increase in bad loans in WA and Queensland.
"Fitch expects soft profit growth in 2016, mainly reflecting asset competition, low interest rates, moderate credit growth and rising impairment charges," Fitch said in a statement on Friday.
ANZ has already cut its interim dividend after its first-half profit slumped by nearly a quarter, Westpac this month lifted first-half cash earnings a below-expectations 3.3 per cent, and Commonwealth Bank lifted first-half cash earnings 3.9 per cent back in February.
NAB posted the best results of the big four, lifting cash earnings 6.5 per cent following the disposal of its unprofitable UK business.
However, Fitch said a stable labour market and historically low interest rates should limit the negative impact on banks' asset quality should residential property prices decline in some areas due to potential oversupply.
The agency also forecast a continuation of tightened underwriting criteria imposed last year.
"Some portfolios, such as resources, are likely to continue experiencing asset-quality pressure due to weak commodity prices, which Fitch does not expect to improve in the short-term," Fitch said.
"However, the banks' exposures to mining and dairy remain manageable relative to total exposures."
Fitch said a hard landing for the Chinese economy could hit the big Australian banks, but that such a scenario is not its base case.
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