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In its latest assessment report, the US-based Moody’s Investors Service revealed that the coordinated policy measures announced by Australian regulators and the government over the past week to fight the coronavirus impact are credit positive for the local banks.

Key findings

Coordinated policy response will help mitigate economic stress, although ultimate impact remains uncertain.

Even with measures, asset quality and profitability will likely be pressured.

Tanya Tang, a Moody’s Analyst, noted: “The Reserve Bank of Australia’s (RBA) stimulus announced yesterday follows other policy measures, and demonstrates the strong coordination between Australia’s key financial regulators and government. This coordinated approach played an important role in maintaining financial stability during the 2008-09 global financial crisis.”

 “Second-order impacts from the economic disruption remain a key risk asset risk. In particular, rising unemployment will likely create residential mortgage stress, while rising credit costs will further pressure bank profitability, which is already being squeezed by record-low interest rates.” adds Tang.

Tang emphasised that “Australia’s banks are in a much stronger position heading into this downturn than they were during the 2008-09 global financial crisis, having much improved capitalization, funding and liquidity.”