Australia's big four banks have been downgraded by Moody's today amid growing risks in the household sector.
Australia & New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corp were all downgraded to Aa3 from Aa2, Moody's said in a statement released Monday.
Australia's highly-indebted housing market could slow in the second half of the year if banks raise their rates to pass the cost of the $6 billion banking levy to consumers.
Such risk was heightening the sensitivity of the banks' credit profiles to an adverse shock, according to the ratings agency.
Moody's said while it did not expect a sharp downturn in housing as its key scenario, it could not ignore the risk that high levels of debt and the rapid credit expansion could pose down the track.
House prices in Sydney and Melbourne have more than doubled since 2009.
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Residential mortgages account for more than 60 percent of the Australian banks' loan books.
Australia ... exhibits very high levels of household debt, with the ratio of household debt to disposable income rising to 188.7% at end-2016.
"Whilst unemployment remains low - at 5.5 per cent as at May 2017 - rising levels of underemployment indicate spare capacity within the labor market, which could constrain wage growth over the medium term".
The household sector's resilience to weaker employment levels and/or rising interest rates has materially reduced.
Moody's also points out that while the banks are likely to continue to strengthen the resilience of their balance sheets, "the very high level of household sector indebtedness will take a considerable period of time to unwind".
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