Standard & Poor's has placed the Australian banks in a basket alongside those of Russia, Hong Kong, Brazil, Japan and China in a global outlook for credit quality that identifies banking environments facing negative pressures.
The ratings agency says that 11 of the 20 largest banking markets face challenging conditions, with more banks in the Asia-Pacific and Latin-American regions added to S&P;'s negative outlook over the last six months.
Standard & Poor's lowered the credit rating outlook on Australia from stable to negative in July. In October it followed through by revising the outlook of 25 Australian banks to negative, including Macquarie and Bank of Queensland.
The report states that the Australian banking sector faces a one in three chance that the economic or industry risk of operating in a banking environment could change in the near term.
While banks across the globe are being challenged by compressed margins flowing from lower interest rates and the temptation to chase returns, the report says Australian banks have their own mix of problems to contend with.
It identifies the Australian economy as being one of five within the Asia Pacific with levels of household debt that "remain a risk to bank credit quality in particular should there be unanticipated shocks impacting interest rates or unemployment".
Australia and Hong Kong were two countries in the Asia-Pacific region where escalating property prices had emerged as being "a key risk factor for financial institution ratings in 2017".
"Additionally, we now consider that the Australian government's supportiveness toward the systemically important banks in Australia could also come under pressure in the next two years," the report said.
Australia escaped from the list of counties who were the most vulnerable to weaker commodity prices, noting that our banking sector had contended satisfactorily with lower minerals prices over recent years.
The outlook for China weighed also heavily on the framework used in the report. The rating agency expects the ratio of Chinese banks' non-performing loans in 2017 to reach 4.4 per cent or more than double the 2015 ratio of 2 per cent.
"A slowdown in China significantly worse than our current downside scenario – which we do not expect – would hit China and regional bank credit quality hard."
More recent macro economic developments such as the election of Donald Trump in the US however are expected to have less impact on banks in the Asia-Pacific region, with the report describing the impact as "uncertain, although we see no immediate rating impact".
