Stable outlook for Australia’s Defence Bank: Moody’s

Asset quality pressures will remain contained.

Australia’s Defence Bank has a stable outlook thanks to the stable income of its customer base, Moody’s said.

Asset quality pressures are expected to remain contained due to the bank’s focus on lending to current and previous Australian Defence Force (ADF) personnel, who have strong job and income stability and receive subsidies under the Defence Home Ownership Assistance Scheme (DHOAS).

DHOAS also tilts the bank's loan portfolio toward owner-occupied loans with principal and interest repayments, which Moody's considers to be of lower risk than investor loans or interest-only loans, the ratings agency said.

Rising funding costs, however, will put a small dent in the bank's net interest margin amidst a rising interest rate environment, despite higher asset yields.

The bank may also need more wholesale funding to finance credit growth when systemwide savings ratios and deposit growth slow from pandemic highs, Moody’s added.