The commodities slump will push up Australian banks' bad debt costs from historic lows, even though the banks' lending to the resources sector is relatively small, credit ratings agency Moody's says.
After meeting with a range of foreign investors in the local banks, Moody's analysts Ilya Serov and Patrick Winsbury say the "great majority" of investors it spoke to have concerns about how the local economy, and therefore the banks, will be affected by slowing in China, and lower commodity prices.
They said another key concern overseas is the state of the housing market – where the ratings agency expects softer growth after a crackdown on lending to property investors.
In a note to clients, the analysts argue the value of resources sector loans at risk is relatively small, but banks' costs from soured loans will still rise "moderately" as softer commodity prices crimp economic growth.
Commonwealth Bank has the largest direct exposure to the resources sector, at about 3 per cent of its total loans, while ANZ is next highest, at about 2 per cent, the analysts say.
"Although the banks' direct exposures are limited, the unwinding of the commodities cycle is heightening second-order macroeconomic risks they face," the note says.
"Ultimately, it could translate into a more broad-based economic slowdown and softer labour markets than currently anticipated."
"Reflecting these pressures, we expect Australian banks' credit costs to increase moderately from current low levels."
The Reserve Bank's commodity price index has dropped 17.1 per cent in the past year, dragged down by lower coal and iron ore prices in particular.
It comes after Australian banks' profits have benefited from banks' bad debts falling to historic lows, helped by very low arrears rates and lower corporate indebtedness.
Nonetheless, bad debt charges could soon be on the rise, with KPMG saying in November that the total charge for bad loans across the big four increased for the first time since 2012.
A separate report from Moody's also predicted a higher share of home loan borrowers would fall behind on their mortgage payments in 2016, as a result of the softer housing market.
Analysts have previously said the rapid growth in house prices last year helped to limit mortgage arrears, because it allowed borrowers to sell their homes easily before they fell behind on their repayments.
The proportion of prime residential loans that were more than 30 days behind rose from 1.14 per cent in October to 1.2 per cent in November, though Moody's said such an increase was typical for that time of the year.