Australia’s banking sector will soon face an escalation in credit costs. This is an alert by credit rating agency Moody’s. It said a “moderate” hike in credit costs is in sight, as a fall out of the downturn in the mining sector. Among the upcoming macro-economic risks, it said the slowing housing market will be a challenge.  The investors service company warned of rising mortgage delinquencies in 2016.

Noting that mortgage arrears of more than 30 days had a spurt between October and November 2015, Moody’s said a fall in national house prices will further worsen the delinquencies in 2016.

Home loan delinquencies jumped to 1.2 percent from 1.14 percent in the period between October to November 2015. “Strong housing market activity in both Sydney and Melbourne helped foster strong economic performance in the respective states of New South Wales and Victoria,” noted Alena Chen, assistant vice president at Moody’s, reports Reuters.

The slower pace of house price growth will bring down economic activity and may pull down mortgage performance in 2016. For Australia’s biggest banks like NAB, A&Z this will be a double whammy. The increase in credit costs will further pile up their challenges in the already tough regulatory environment.

Moody’s said the changes in the global commodities cycle will also throw in “some signs of stress” in regions and sectors associated with the mining slowdown. Regarding the impact, Moody’s vice president and senior credit officer Ilya Serov said banks will face high second-order risks from the sharp downturn.

On home loan delinquencies, Serov said, the risks are currently being mitigated by the low interest rates and the fairly healthy Australian corporate balance sheets. Going forward, the banks can expect credit costs to increase moderately from the current low levels, reports The Australian.

The rise in credit costs will be coinciding with the Australian banks’ efforts at drawing more cash from customers to comply with the emerging norms on quality assets to thwart mortgage-related risks. Some other lateral head winds can include the China slowdown.

“Slowing growth in China, Australia’s biggest export market, and declining commodity prices, which are — at or near multi-year lows — will also put pressure on the Australian economy and contribute to below-trend growth and a soft labour market in 2016,” added Alena Chen.