Despite a rise in bad debts, which caused a doubling of impairment charges last year, the banks have maintained reasonable levels of profitability.
“While the rise in impaired assets has not been immaterial, the level at Australian banks remains low by international standards, reflecting a prudent approach to risk management during the ‘good times’, as well as a resilient and flexible Australian economy,” Fitch financial institutions group director Tim Roche said.
Although Fitch expects charges relating to bad debts to remain relatively high in 2010, the risk of large corporations collapsing and, therefore, being unable to repay their loans, has receded.
But the rating agency warns there is still the threat of bad debts springing up in other segments of the market.
“Whereas the initial losses came from corporate loan portfolios, SME (small and medium-sized enterprises) and middle-market loans are starting to exhibit signs of stress,” Roche said.
A rise in unemployment would also be detrimental to the banks’ health, as the majority of their assets consisted of residential mortgages, he said.
