Macquarie draws upon the UK experience to estimate the impact upon bank margins of lower rates for lower loan-to value ratio (LVR) mortgages. The broker concludes this will be an additional headwind contributing to mortgage margin compression and lower returns.
In aggregate, should a similar margin differentiation to UK banks across products hypothetically fully flow through Australian banks’ portfolios, the analyst sees an around -5-20 basis point impact to group margins.
The Neutral rating and $26.75 target are retained for National Australia Bank.
Target price is $26.75.Current Price is $25.91. Difference: $0.84 – (brackets indicate current price is over target). If NAB meets the Macquarie target it will return approximately 3% (excluding dividends, fees and charges – negative figures indicate an expected loss).