Moody's warns profits of big four Australian banks under pressure

By Sophia Rodrigues

Profitability of the big four Australian banks is under pressures from low interest rates amid weak credit growth and intense competition, as well as structural changes that will erode their competitive advantages, Moody's Investors Service said a in report Monday. Moody's notes banks' net interest margins narrowed only slightly in the last fiscal year (ending September 2019) because RBA easing started only in June while wholesale funding costs declined before that. These benefits will fade in 2020 because similar reduction in wholesale funding costs is unlikely, while lower lending rate will have a fuller impact over the course of the year. Apart from this, banks' profit growth could come under pressure from possible further fines for breaches of regulations and top up provisions for customer remediation. Other headwinds for the big banks include intense competion for lending, regulatory changes which could make retail banking a much lower return business, increased competition due to lower entry barriers to the banking sector and technology, the report says.