Australian banks will take large losses from loans to businesses in the tourism and education sectors this year, while facing a broader hit in housing loans if the COVID-19 outbreak results in higher levels of unemployment, rating agencies said on Tuesday.
Credit losses at the banks would nearly double from 2019 levels to about 0.30% of total domestic loans, according to S&P Global. That is equivalent to about A$9 billion, official figures show, which would be "low" compared to international peers, it added.
"A longer lasting and more severe impact than our revised base case could trigger significant problems for the Australian banking system," S&P Global said in a statement.
Shares in Australia's four largest banks, Commonwealth Bank <CBA.AX>, Westpac Banking Corp <WBC.AX>, National Australia Bank Ltd <NAB.AX> and Australia and New Zealand Banking Group <ANZ.AX>, have fallen between 25% and 35% since Jan. 31, according to Refinitiv data.
That compares with falls in Wells Fargo & Co. <WFC.N> shares of 43.5%, and market value dives worth 37.7% and 44.6% at Bank of America Corp <BAC.N> and Citigroup Inc <C.N> respectively over the same period.
Australia's central bank joined global efforts to counter the damaging impact of the coronavirus epidemic on Monday, pumping extra liquidity into the strained financial system and flagging further policy steps to support stability.
Banking analysts and credit rating agencies expect the banks, which are much better capitalised than they were in at the time of the last global financial crisis, would seek to support small businesses and the broader community during the fallout.
"We expect that the Australian banks would aim to 'do the right thing' by their customers and broader society to meet community expectations," S&P Global said.
Earlier this month, all four major banks took the unusual step of passing the full 0.25% interest rate cut by the central bank through to their borrowers despite persistent pressures on their interest margins and earnings headwinds.
In a statement, Fitch Ratings said it expected "the direct impact to be manageable for Australian banks," without quantifying it.
"The impact of the pandemic on Australian banks will be felt mostly through asset-quality and earnings pressure... and felt mainly in weaker loan quality in highly affected sectors such as tourism, education, discretionary retail and some commodities."
Australian banks have A$2.9 trillion in gross loans and advances to domestic households and businesses, according to the Reserve Bank of Australia.
(Reporting by Paulina Duran in Sydney; Editing by Shailesh Kuber)
