Australia’s booming banking sector is facing its toughest conditions in a decade, with economic, credit and regulatory risks rising. As insurance companies’ fortunes rise after years of problems, a survey of top international bankers, regulators and analysts in 15 countries says the results have important implications for Australia.

The survey, published by the UK Centre for the Study of Financial Innovation, identifies 30 potential sources of risks to banks and ranks them by severity. This year the biggest source of risk is credit risk, whereas in previous year’s surveys it was identified as the third biggest risk.

Insurance ranked sixth in the leaders’ list of worries. The others: the macro-economy, equity markets, complex financial instruments, business continuation, domestic regulation, emerging markets, banking market over-capacity and international regulation.

The reports have traditionally been a good indicator of Australian market trends, according to Craig Harmer, PricewaterhouseCoopers’ financial services leader in Australia.

“The rising concerns relating to both credit risk and regulation have particularly significant implications for Australian financial institutions,” he said. “Concern over regulation” has moved up the list in the past two years. “It reflects the growing international regulatory requirements and there is particular concern about the proposed Basel 2 accord,” Mr Harmer said. “The level of disclosure and historical information required to grade credit risks under the regulations will have a direct impact on Australian companies with a European presence. It will be also interesting to see how APRA chooses to adopt or modify the recommendations locally.”