Credit ratings agency Fitch has downgraded its outlook for Australia's banking sector to negative from stable, citing increased macroeconomic risks and pressure on profit growth.
Fitch said on Monday the overall sector's strong asset quality, profitability and capitalisation could be weakened if China's growth slowed more than expected, while rising household debt and property price growth means there could be a sharp correction if the jobs market and interest rates changed.
Fitch said that was not its base case and that its ratings outlook for Australia's major banks remains stable, but warned of potential challenges.
"A worse-than-expected slowdown in China's growth would negatively impact Australia's economy given the countries' strong economic ties," Fitch said in a report.
"A prolonged global funding market disruption could place significant pressure on the banks' balance sheets despite the improvements in liquidity."
