Fitch: Australian Bank Outlook Remains Stable in 2014

Tue Jan 14, 2014 5:20pm EST

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2014 Outlook: Australian Banks here SYDNEY, January 14 (Fitch) Fitch Ratings says in a special report published today that despite some challenges the sector outlook for Australian banks remains stable for 2014. 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 likely to be offset by further strengthening in funding and capital positions. The biggest risk to this outlook remains a sudden and severe downturn in China. However, this is not Fitch's base case. Weakening credit standards in an attempt to win market share in a low credit growth environment, and a prolonged and severe dislocation of funding markets, constitute other risks. Fitch expects asset quality pressure will be most prevalent in the banks' commercial loan portfolios. However, the erosion of credit quality is unlikely to be severe. In addition, loss absorption buffers in the form of solid profitability, existing loan loss provisions and adequate capitalisation mean the banks should be easily able to withstand the deterioration. 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. Funding and capital positions should continue to strengthen through 2014 to meet incoming regulatory requirements. Further improvement in funding profiles could focus more on longer-term wholesale issuance relative to deposit growth. Capital accumulation is likely to continue through internal generation, including for those institutions designated as systemically important domestic banks. However, the pace of growth may slow as most Australian banks already exceed their 2016 Basel III capital requirements. The report "2014 Outlook: Australian Banks" is available at www.fitchratings.com or by clicking on the link above. Contact: Tim Roche Senior Director +61 2 8256 0310 Fitch Australia Pty. Ltd., Level 15, 77 King Street, Sydney NSW 2000 Andrea Jaehne Director +61 2 8256 0343 Media Relations: Iselle Gonzalez, Sydney, Tel: +61 2 8256 0326, Email: iselle.gonzalez@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.

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