Australian banks are navigating a period of stable yet subdued conditions, according to Morningstar analyst Nathan Zaia. Credit growth is projected to align with the Reserve Bank of Australia’s GDP forecast, hovering in the mid-single digits over the next five years. Minimal shifts in market share are anticipated among the major players. Morningstar is a leading provider of independent investment research, offering data, analytics, and insights to investors worldwide. They provide ratings and analysis on a wide range of investment products.
Over the past five years, major banks collectively experienced a roughly 1 per cent decrease, primarily due to ANZ and Westpac addressing operational challenges. In contrast, Macquarie saw the most significant gains and is positioned to potentially acquire further market share from smaller lenders. The possibility of increased credit growth resulting from higher leverage appears limited. While households have benefited from substantial price increases, gearing remains elevated, and borrowing capacity is still restricted by serviceability regulations.
APRA has identified rapidly expanding investor lending as a potential risk towards the end of 2025. Morningstar anticipates the possibility of lending caps or stricter criteria if the current momentum persists. Net interest margins for major banks are expected to average 1.85 per cent by fiscal year 2027, which is comparable to fiscal year 2025 levels.
Zaia noted that smaller lenders are losing ground in the home loan market as they prioritize preserving margins over aggressively competing for deposits. Digital banking is reducing switching costs and enhancing price transparency, which maintains some pressure on deposit pricing. Pricing appears rational, considering sector returns, with major banks projected to achieve a return on equity (ROE) of approximately 11 per cent in FY25, compared to around 7 per cent for non-major banks.
