Credit Quality: Good For Now

Research evidence excerpt

Credit Quality: Good For Now

Idea

July 7, 2026 08:00 PM GMT

Morgan Stanley Australia Limited+MAustralia Banks | Asia Pacific Richard E Wiles

Equity Analyst

Credit Quality: Good For Now Richard.Wiles@morganstanley.comSally Hong, CFA +61 2 9770-1537

Sally.Hong@morganstanley.com +61 2 9770-1698

We think credit quality has remained sound and the majors'

underlying loss rates will average just ~9bp in the June quarter.

However, we see risk of earnings downgrades from higher loss

rates in FY27. NAB has the most exposure to business loans, but

WBC has grown the most over the past 3 years. Australia Banks

Asia Pacific

Exhibit 1: Major Banks: Consensus Forecast Loss Rates vs Pre-COVID Averages Industry View Cautious

0.30% 0.25% 0.23% 0.20% 0.16% 0.14% 0.10% 0.11% 0.11% 0.15% 0.09% 0.07% 0.07% 0.10%

0.05%

0.00%

10yr 5yr 3yr FY23 FY24 FY25 FY26E FY27E FY28E

Pre-COVID Post-COVID Forecast

Note: Loss rates are impairment charges / total loans. 10-yr average is FY10-FY19, 5-yr average is FY15-FY19, 3-yr average is FY17-

FY19. Forecasts for FY26 - FY28 are consensus estimates. Source: Company data, Visible Alpha, Morgan Stanley Research

Credit quality still sound in the June quarter: In our view, there has been a major

shift in the domestic economic outlook and the banks' operating environment since

February (refer The Game Has Changed (21 May 2026)). While this is likely to weigh

on consumer spending and business profitability over time, we think major bank

credit quality remained sound in the June quarter, as deposit growth has been

strong, the labour market has been resilient, and businesses have passed on higher

input costs to customers. In the June quarter, we forecast major bank impairment

charges of ~A$1bn, which equates to an annualized ~11bp of loans. We assume that