Shares of Australia’s big four banks could face downward pressure following the Reserve Bank of Australia’s (RBA) recent interest rate hike. Morgan Stanley has warned that the earnings of Commonwealth Bank (CBA), National Australia Bank (NAB), ANZ, and Westpac could be negatively impacted by as much as 11 per cent. Analyst Richard Wiles noted that the RBA’s 25 basis point increase, bringing the cash rate to 4.1 per cent, could fundamentally alter the operating conditions for these major lenders.
Wiles highlighted that rising borrowing costs and a potential economic slowdown could trigger a de-rating of the banks’ shares. Furthermore, with the market anticipating additional rate increases before the end of the year, Morgan Stanley forecasts a slowdown in annual GDP growth to 1.6 per cent in 2026, down from 2.6 per cent in the previous year. Wiles cautioned that this uncertain environment elevates the risk of both earnings downgrades and a de-rating, increasing the likelihood that the banks will underperform the ASX 200 in 2026.
An economic slowdown, according to Wiles, would also lead to slower loan growth, impacting the profitability of the big four banks. In a worst-case scenario, earnings downgrades could reach 8.9 per cent for CBA, 9.7 per cent for Westpac, 10.1 per cent for ANZ, and 14.3 per cent for NAB. These figures suggest significant potential declines in share prices for each of the banks. Commonwealth Bank provides financial services, including retail, business, and institutional banking. National Australia Bank also provides a range of banking and financial services to individuals and businesses.
UBS has also adjusted its RBA forecast, now anticipating another rate increase in May. This shift follows hawkish signals from RBA Governor Michele Bullock, despite a narrow vote to raise rates at the recent meeting. On Wednesday, CBA, Westpac, and NAB shares remained relatively stable, while ANZ experienced a drop of approximately 1.4 per cent following a revised outlook from Goldman Sachs.
