Australia's large banks face up to an 18 per cent increase in losses on loans from the tanking oil price, Morgan Stanley says.
The investment bank said the lower price would increase losses by 18 per cent at Commonwealth Bank, which has the biggest exposure to the oil and gas industry at $11.6 billion, 11 per cent at ANZ Bank and 13 per cent at Westpac. 
The losses would occur in the first half of the financial year, Morgan Stanley said. Australia's banks have $31 billion in loans to oil and gas companies.
Brent crude oil fell to less than $US28 a barrel in trading overnight, which is below the cost of production for many projects, and is down 22 per cent in the past month and 70 per cent since   January 2014.
"We would expect the material decline in the oil price to lead to risk migration and higher collective provisions, or 'overlays', in the first-half 2016 results," Morgan Stanley said in a note to clients.
Its analysts said oil and gas accounted for 45 per cent of the banks' lending to the resources sector and it assumed the big four banks would need to raise their proportion of impaired loans by 2 per cent for the half year to take account of the oil price fall.
Earnings per share would fall by about 1.5 per cent at CBA, 1.5 per cent at ANZ and 1 per cent at Westpac, Morgan Stanley said.
The majority of CBA's commodity lending is in oil and gas. At the other three big banks it is a significant minority, with NAB having the lowest levels at $4.5 billion out of a total mining book of $12.1 billion.
Total loans to resources accounts for just 1.5 per cent of the big four Australian banks' non-mortgage credit exposure.
The lower oil price had added to eight small problem areas emerging for the banks, Morgan Stanley said.
"While Australian credit quality is currently stable and the diversification of non-mortgage portfolios mitigates risk from stressed industries, we are concerned about the growing number of 'pockets of weakness'."
The other seven problem areas include four more related to the woes of the commodity sectors - mining services companies and mining towns, New Zealand's dairy industry hit by falling prices and drought affected agriculture - as well as over supply of high-rise apartments in Melbourne, commercial property in Perth and uncertainty over high-street retailers.