In half-year reports released this week, three of the big four banks outlined how global conflicts, trade frictions, and domestic recovery challenges are converging to shape their strategic direction, risk settings and credit profiles.
The banks are particularly attuned to how these external forces may affect credit quality, customer repayment capacity and investor sentiment.
Westpac said “significant risks subsist” in the current environment, stemming from geopolitical instability, conflicts, trade tensions, tariffs, sanctions, social disruption, civil unrest, war, terrorism, international hostility, and even complicity in or reluctance to act against certain crimes.
“Such events or the uncertainty related to the potential for such events are and could continue to directly and indirectly impact our and our customers’ operations, affect domestic and international economic stability and impact consumer and investor confidence, which in turn could disrupt industries, businesses, service providers and supply chains and ultimately adversely impact economic activity,” the big four bank said.
Westpac added that the knock-on effects could result in material and labour shortages, higher energy and commodity prices and market volatility – all of which could drag on asset values, impair customers’ repayment ability and hinder its own capacity to recover funds.
“All of these impacts could adversely affect our business, prospects, financial performance or financial condition,” Westpac said.
“The current global landscape is marked by significant and prolonged conflicts, increasing protectionist policies (and uncertainties surrounding such policies) and heightened tensions, which have the potential to further intensify these impacts.”
In its own ASX filing, NAB cited “a downturn in global macroeconomic conditions and an increase in geopolitical tensions” as credit risks to the group.
“The group has operations primarily in Australia and NZ, and also across Asia, the United Kingdom, Europe and the United States. Levels of borrowing are heavily dependent on customer confidence, employment trends, market interest rates, and other economic and financial market conditions and forecasts. Pressures on the global economy therefore pose a heightened level of credit risk for the group,” it said.
It noted that “recent change in the United States political administration”, combined with “increasing fragmentation in democratic political systems”, is driving a rise in anti-globalisation sentiment.
“The introduction of tariff regimes by the United States and retaliatory tariffs introduced by its trade partners have increased trade tensions and ultimately could disrupt trade between major economies,” NAB said.
Given Australia’s export-oriented economy, the bank warned it remains vulnerable to such disruption.
NAB also pointed to “considerable uncertainty surrounding the United States administration’s broader policy direction”, warning it continues to erode business confidence which could ultimately result in adverse outcomes for the NAB Group’s customers.
It added that China’s weakening growth and mounting trade challenges, including weak consumption, a troubled property sector and rising protectionism, pose additional risks to Australia’s commodity and agriculture exports.
“Sustained headwinds that negatively impact China’s economy may therefore translate to increased financial strain on the group’s customers and lead to increased defaults,” it said.
ANZ, too, flagged “a more disruptive era of geopolitics”, with outgoing CEO Shayne Elliott highlighting “sweeping US trade policy changes and global supply chain disruptions” as key drivers of volatility.
“We are operating in a less globalised world,” Elliott said. “Trade flows are interrupted, customers forced to adjust strategies and capital is more cautious.”
Elliott said ANZ would maintain a conservative risk posture in the near term while continuing to “follow our customers and facilitate that realignment as they move capital, rethink their manufacturing base or change supply chain”.
“Closer to home, this realignment is impacting confidence, but I remain positive,” Elliott said.
Chief financial officer Farhan Faruqui echoed the sentiment, noting the bank has spent years de-risking its portfolio, simplifying operations and shoring up capital and liquidity buffers.
“We think we are well positioned to support our clients as they think about reshaping their supply chains as they move their production from one location to the other.”
Banks diverge on rate expectations
On the domestic front, the big banks agreed that while Australia has technically exited a per capita recession, the broader economic recovery remains fragile and uneven.
Westpac expects economic growth to lift from 1.2 per cent in 2024 to 1.9 per cent in 2025, with private demand likely to supplant public spending as the main growth driver.
NAB echoed a similar outlook, flagging that while population growth has supported aggregate demand, per capita measures of activity remain weak, underscoring lingering strains on household budgets and consumer confidence. It projects gross domestic product (GDP) growth to reach around 2 per cent over 2025.
ANZ is slightly more upbeat, forecasting GDP to lift to 2.1 per cent this year, before expanding to 2.5 per cent next year.
All three institutions suggested that the Reserve Bank may need to cut interest rates several times in 2025 to support growth and offset downside risks, though their projections diverge.
NAB is the most dovish, expecting rates to fall from 4.1 per cent to 2.6 per cent by February 2026, with both Westpac and ANZ expecting the year-end rate to settle at 3.35 per cent.
