Earnings challenges of Australia’s big four banks to ease: Fitch

Asset quality outcomes from the pandemic were less severe than expected.

Australia’s four largest banks' earnings are slated to enjoy a respite from challenges on the back of higher interest rates and stable asset quality, reports Fitch Ratings.

The ratings agency expects the earnings metrics of the four banks – Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac–to remain stable over the next two years. 

This reflects the strong rebound in metrics during their 2021 financial years, according to Fitch, in turn, driven by reduced loan-loss allowance charges. 

“The actual asset quality outcomes from the pandemic were less severe than the banks expected, resulting in the write-back of some of the provisions raised in 2020,” Fitch wrote.

Overall, banks’ asset qualities are expected to remain at around current levels through 2022 on low unemployment rates and strong house price appreciation in recent years.

However, capital ratios may deteriorate modestly as banks return capital to shareholders. 

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