Australia’s Big 4 banks to see asset quality ‘moderately’ weaken in 2025

But impaired loans should peak in 2025 then decline in 2026 on falling interest rates.

Australia’s four major banks are expected to see their asset qualities modestly weaken and for their impaired loans to peak in 2025, according to Fitch Ratings.

All four banks— Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Bank of Australia, and Westpac— should see their stage 3 loans decline in 2026 as falling interest rates ease repayment pressure on borrowers.

Their collateral positions are strong across their peer group, supported by strengthened mortgage underwriting since the mid-2010s, the ratings agency said in a report published on 14 April 2025.

The banks’ loan to customer deposits ratio have also shown sustained improvement, Fitch said.

“Their strong liquidity management continues to offset some of the risks from their reliance on offshore wholesale funding sources,” it added.