These are threats to Australian banks' struggle for solid growth

Don't worry, the country can face them.

Moody's Investors Service's outlook for the Australian banking system remains stable, but while the Australian economy remains on a stable growth path, it is confronting two challenges.

According to a research report from Moody's Investors Service, these challenges are further reduction of investment in the resources sector and rising asset price inflation.

The report said Australian banks can manage these issues with little risk of disruption to their credit standing, thanks to their improved balance-sheet strength, funding profiles and financial flexibility.

Moody’s Investors Service’s baseline scenario is that the economy will maintain a steady pace of growth, and the current low interest rate environment will support banks’ asset quality and profitability over the period of this outlook.

Under this scenario, banks will be able to accumulate capital buffers for upcoming regulatory changes.

Here’s more from Moody’s Investors Service:

On balance, we expect the operating environment to remain broadly supportive. Our baseline scenario assumes GDP growth of around 3% for 2014 and 2015.

Growth will be underpinned by resources exports, as more production capacity – such as LNG plants – comes on line.

While there may be pockets of weakness from lower investment and fiscal spending, low interest rates should support overall private-sector demand. Under these circumstances, we expect loan growth to maintain the current moderate pace of 6%.

Asset quality will remain supported by the current low interest rate environment and conservative loan underwriting practices.

Low interest rates will also continue to facilitate the resolution of the banks’ stock of impaired loans and stressed exposures.

We expect upward pressure on interest rates to remain moderate as inflation remains well within the target range and consumer and business confidence continues to be low.

While the continuing economic transition may create new pressure points in banks’ loan portfolios, any increase in net credit costs will be contained at a level that is well below the long-run average.

Profitability will remain strong as Australia’s major banks1 enjoy considerable pricing power.

Nonetheless, loan-price competition could rise as credit growth remains at moderate levels, especially in residential mortgage and corporate lending.

Pressure on interest income should be offset, to some degree, by lower overall funding costs as wholesale funding costs improve, allowing banks to ease competition for deposits.

We expect these factors will keep net interest margins relatively flat over our outlook period.