Bushfires to have modest effect on Australian banks' credit losses: analysis

But losses from business lending could increase.

The ongoing bushfires pose a moderate effect on the increase in larger Australian banks’ credit losses, particularly in the home loan portfolios, but losses from business lending could become more significant, S&P Global Ratings said in a media noted.

Accordingly, the bushfires have not yet directly affected major cities where the banks have most of their home loan exposures. Only a small rise in overall credit losses and delinquencies from portfolios are expected.

However, credit losses from bank loans to agricultural and tourism related sectors could increase as lending in these sectors comprise about 10% of the total Australian bank business lending. The fires are likely to result to short- and long-term loss of productive assets like livestock, fruit-bearing trees, and tourist accommodation and attractiveness.

Lapsed insurance policies and underinsurance could worsen credit losses and arrears, but the banks are expected to act in a socially responsible manner and extend hardship allowances to their borrowers, the report noted.

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