Fitch: Australian Bank Outlook Remains Stable in 2014

(The following statement was released by the rating agency)

Link to Fitch Ratings' Report: 2014 Outlook: Australian Banks

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729437

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

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