Fitch Ratings downgraded its outlook on Australian banks to negative from stable amid a potential fall in house prices that could threaten banks' profit in 2017, The Australian reported Dec. 10, citing a regional report from Fitch Ratings.

Fitch said the Australian residential property was one of the banking sector's biggest risks in 2017.

Banks are susceptible to some asset quality deterioration if house prices drop due to their significant exposure to residential mortgages, said Andrea Jaehne, a Fitch analyst. She pointed out that a large number of newly built apartments will come onto the market in the next 12 to 18 months, which will create a potential oversupply.

Banks' cost savings will likely be offset by more spending on improving their technology, Fitch added.