Fitch Ratings, one of the Big Three credit rating agencies, has downgraded its outlook on the Australian banking industry, citing rising household debt and concerns over higher potential loan losses.

As detailed in its official press release, Fitch Ratings has revised the sector outlook on Australia’s banking sector from stable to negative this year, following a similar downgrade by Moody’s in August.

Standard & Poor’s also has a negative outlook on most banks, including the Big Four. S&P’s downgrade came in July, when it placed Australia’s AAA rating under review.

According to Fitch Ratings, the “key” risk was the banks’ high exposure to the property market, including the looming oversupply of apartments in many major cities. Meanwhile, profits were under pressure due to weakening demand for loans and higher funding costs.

“Household debt is high and rising relative to disposable incomes, making borrowers sensitive to changes in the labour market and interest rates,” Fitch analyst Andrea Jaehne said in a report co-authored with Jack Do and Tim Roche. “Fitch does not foresee the Reserve Bank of Australia raising its cash rate in the near term, although mortgage rates could rise given higher bank funding costs.”

On Monday, NAB blamed rising funding costs for its decision to increase fixed mortgage rates up to 80 basis points. NAB’s rate hikes followed a similar move by ANZ last week, a month after lifting the price of loans for property investment.

“Fitch's rating outlook for Australian banks remains stable. However, the ongoing rise in household debt and house-price growth heightens the banking system's sensitivities to a sharp correction if labour market conditions and interest rates were to change,” Jaehne said.