The earnings of Australian banks are likely to peak this year, then trend downwards, S&P Global forecast in their report, ‘Banking Industry Country Risk Assessment: Australia’, released yesterday. S&P sees the return on equity of domestic banks reaching 12.2 per cent this calendar year, up from 11.0 per cent in CY2022. S&P then expects industry ROE to ease to 11.7 per cent in 2024 and to 11.2 per cent in 2025. “We expect Australian banks will continue to price rationally for risks, affording them a buffer for unexpected situations such as the risks from the pandemic in the past two years,” S&P said.  “Banks generally have a track record of prudent risk pricing and management rather than chasing aggressive growth or returns. “Credit losses over the next two years should remain low; that is, at pre-COVID levels. “We believe that low unemployment levels will help borrowers weather the rising interest burden as borrowers shift mortgages from lower fixed rates to higher variable rates.” S&P said risks facing banks in Australia “could increase if, contrary to our base-case expectation of an orderly decrease, house prices plunge or sharply rise in the next two years”. “Banks in Australia remain exposed to elevated risk of a jump in credit losses despite an orderly fall in house prices in the past 12 months.  “High household debt, rising interest rates, and uncertain economic conditions pose risks to borrowers' debt servicing ability. A sharp fall in property prices, pronounced economic downturn with a jump in unemployment, or financial market dislocation could set off a spurt in credit losses,” S&P said.