Australia’s four largest lenders have all underperformed the ASX200 in the past year, due largely to two factors: interest rates and the spectre of bad debts.
Shares in Australia’s major banks have been dragged lower as the economy slows and executives warn of surging competition for mortgages and deposits.
“There was a lot of excitement about rate increases and what that would mean for bank margins, but the banks have competed a lot of that potential upside away,” he says, adding that it is unlikely banks will reach the expected peak margins, fuelled uncertainty and downside risk for future earnings.“Bubbling away in the background is bad debts. Everyone knows they’ll go higher, but how much higher is still uncertain.
However, the situation should improve within two or three years, and both Westpac and ANZ are trading at around a 20 per cent discount to Morningstar’s valuation. Agreeing that banks’ exposure to housing loans means growth is “likely hard to come by” in the next year, he says he wouldn’t be tilting further in.
The RBA is expected to keep interest rates on hold at 3.6 per cent when it meets on Tuesday, as inflation falls to 7 per cent.
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