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Strong competition for loans is likely to result in limited profit growth for Australian banks in 2014, according to the 2014 Outlook: Australian Banks report, released by Fitch Ratings.
Despite some challenges, the ratings agency says the sector outlook for Australian banks remain stable.
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The agency believes a modest weakening in the operating environment will lead to some manageable asset quality deterioration and place some pressure on revenue growth. However, this is expected to be offset by further strengthening in funding and capital positions.
The agency listed a number of risks that could possibly impact the position of banks in 2014, including a sudden and severe downturn in China, weakening of credit standards in an attempt to win market share in a low credit growth environment, and a prolonged and severe dislocation of funding markets.
According to a statement on the Fitch website, “Higher impairment charges are likely to result from asset quality deterioration, while strong loan competition could pressure net interest margins, meaning profit growth will probably be limited in 2014.
“A likely increase in credit growth and fall in funding costs could provide some offset to these factors, and cost management should remain a key focus.”
