Credit ratings agency Moody's has revised its outlook on the Big Four banks to negative, citing challenges in the operating environment and to profit growth as reasons for the downgrade.

Moody's said the outlook change reflected the expectation for challenges in the remainder of 2016 and beyond for the Commonwealth Bank, NAB, ANZ and Westpac, which could lead to a deterioration in profit growth and asset quality and an increase in sensitivity to any external shocks.

Moody's said the rating action reflected:

Australia's ongoing economic transition which has resulted in low income and wage outcomes and persistently low interest rates, which pressures the banks' profit margins

Australia's ongoing economic transition which has resulted in low income and wage outcomes and persistently low interest rates, which pressures the banks' profit margins Concerns regarding the banks' exposure to tail-risks in the Australian housing market with strong price appreciation and rising household debt

Concerns regarding the banks' exposure to tail-risks in the Australian housing market with strong price appreciation and rising household debt Rising bad debt within parts of the banks' lending portfolios

"Despite these headwinds, Australian banks maintain strong buffers in terms of capital, improved liquidity profiles, and structurally high profitability," Moody's said in the report.

"Their outlooks could be revised to stable if the operating environment in Australia improves, with a stabilization in household leverage, nominal income and house price metrics, and/or these banks further improve their capitalisation and funding profiles."

Falling credit quality has been well telegraphed in banking circles, with recent earnings results highlighting how bad debts have affected bottom lines.

"It reminds us that at times of global economic volatility, Australia's major banks are under intense scrutiny from ratings agencies and global funding providers," said Commonwealth Bank chief financial officer David Craig in a statement.

"Moody's emphasis on profitability highlights the importance of profit growth in maintaining banks' strength and the confidence of global funding providers."

Westpac said the rating action had impacted its other rated subsidiaries, including its mortgage insurance and New Zealand arms.

The bank said, however, that it "remains one of the highest rated banks in the world".

The Big Four are already under pressure as 17 banks and two international broking houses have launched a class action relating to the alleged rigging of the bank bill swap rate (BBSW) and bank trading in the United States.

Earlier this week Moody's affirmed Australia's AAA credit rating, saying it expects Australia's economic "resilience to endure in an uncertain global environment".