Australian bank stocks are under scrutiny as interest rate movements present a complex outlook. Morgan Stanley suggests the anticipated 50 basis points of rate increases could give a temporary lift to bank net interest margins, estimating a 2 to 3 basis point increase due to higher interest earned on deposits compared to what is passed on to customers. Longer term, replicating portfolios and equity hedges may also benefit from these higher rates. However, historically, increased rates have negatively influenced bank price-to-earnings multiples, suggesting any positive impact on bank stocks might be limited.
Credit growth remains strong, with the latest data from the prudential regulator indicating a 9 per cent annualised system growth over three months ending in December. This surge, the fastest since 2022, is fuelled by an 8 per cent rise in housing loans and a 12 per cent increase in business lending. These figures imply that the Reserve Bank of Australia’s (RBA) previous rate cuts are still influencing the market. The fundamental question remains: how will future rate hikes affect economic growth and the demand for credit?
UBS banking analyst John Storey points to a shifting landscape in the mortgage market, with Commonwealth Bank, Westpac, and Macquarie Bank capturing a significant 73 per cent of new mortgage flows in December. Macquarie, which offers diversified financial services including retail banking and wealth management, is rapidly growing its mortgage and deposit base, outpacing the broader banking system’s growth rate. Macquarie’s appetite for disruption remains strong.
ANZ, another major player, aims to increase its retail business growth under CEO Nuno Matos. However, the challenge lies in reclaiming mortgage market share in a competitive environment dominated by its rivals and how much profitability ANZ needs to give up to do so.
