Credit rating agency Fitch Ratings has warned that Australia’s Big Four banks—Commonwealth Bank of Australia, National Australia Bank, Australia and New Zealand Bank, and Westpac—could be facing profit risks due to bad debts, but a lack of competition may actually help them maintain their AA-credit rating.

“The Australian banking system is certainly benefitting from the strong position of four major banks that dominate the market, with around 79 per cent of residential assets, and that gives them bring extremely good pricing power,” said Fitch ratings director Andrea Jaehne. This means that if any of the major banks gets into financial trouble, they can simply raise their mortgage rates or fees or cut deposit rates to protect their profitability.

According to Fitch’s latest report, there are several rising risks for the banks, such as the prospect of a hard landing for China’s economy and the emerging rise of bad corporate debts. Australia also has the world’s most indebted households, with a debt-to-income ratio at 186 per cent.

“We argue some of the tax policies might have contributed to it, such as negative gearing,” Jaehne said. “Also you have more property purchasers coming into the market that are not necessarily just Australian, so they are competing with Australian households as well.”

But in spite of these risks, Jaehne said that the banks will probably feel the most pain from their corporate loan books.

“Most likely we think it’s going to be unemployment (that would trigger a housing downturn). That means actually the businesses and corporates are probably struggling more,” she said. “Therefore, we would see asset quality weaknesses in their books first before we see it in the household books.”