Moody's Cites Aussie Banks' Stability, Warns of Likely Downturns

Australian banks are in a position of strength despite emerging global challenges but ratings agency Moody's warned that the volatile situation in Europe could pose serious threats to the sector's present stability.

According to Moody's latest investment advisory, Australian banks currently stand on solid grounds and they have their balance sheets to back up such stature.

To put the overall picture into a clearer perspective, Moody's senior vice president Patrick Winsbury allowed that collectively, local banks in the country brandish signal much stronger balance sheet figures than they did at the height of the global financial crisis in 2008.

On that account alone, and with the local economy supporting the banking sector's upbeat mood, Moody's gave Australian banks positive outlook, which the agency will largely lean on the surging activities of the country's resources sector.

The mining industry, Moody's said, is currently in the middle of a boom but as a strong caution to market investors, the agency noted too that Australia's cash rate could remain high along with value of its currency.

"The longer-term structural changes associated with increased investment in the resource sector are likely to pressure certain industries and regions, keeping credit impairment levels above the extreme lows of the pre-crisis period," Moody's note was reported by The Herald Sun as saying on Friday.

Such condition could prevail, the Moody's advisory said, even if segments of the domestic economy would be hit by contractions that most likely would be triggered by the financial crisis that Europe is dealing with at this time.

Also, the overall state of the banking system, Moody's stressed, remains susceptible to external factors, chief of which is the possible slow downs in global economy once the Euro crisis fails to reach resolution soon.

Moody's sentiments are shared by Bunnings & Officeworks managing director John Gillam, who agreed that while banks are generally healthy now, the likelihood of another financial crisis appears to be approaching.

Like many players in the retail industry, Gillam said that the current patchwork economy gives his company a hard time but sufficient preparation and sound management buffers them for the worst, and the same goes with other firms.