A looming slowdown in mortgage lending, coupled with higher provisions for souring loans and rising interest rates, is darkening the outlook for Australia’s major banks. These institutions primarily provide financial services, including lending to individuals and businesses, with a significant focus on mortgages. Once favoured by investors for reliable dividends, their shares have recently fallen out of favour, marking a significant shift in market sentiment and positioning them among Asia’s worst-performing banking stocks.
The Australian banking sector has been under pressure since late February, with concerns over economic growth and recent changes to housing tax rules driving a significant selloff. National Australia Bank (NAB.AX) has seen a 23% decline, Westpac (WBC.AX) is down nearly 14.5%, ANZ (ANZ.AX) has lost 11.2%, and Commonwealth Bank (CBA.AX) has dipped 5.6%. Richard Wiles, an Australian banking analyst at Morgan Stanley, highlighted the unprecedented speed of change, noting, “Aside from COVID, we cannot recall a time in the past 25 years when the operating conditions for banks have shifted so quickly.”
This downturn highlights a turning point for the big Australian banks, facing a potential slowdown in the nation’s A$2.4 trillion mortgage market. Growth challenges are compounded by the Reserve Bank of Australia lifting rates, pushing borrowing costs to post-pandemic highs. Proposed changes to property-related tax concessions are expected to further slow mortgage lending, impacting bank margins. Morgan Stanley forecasts Australian home prices could fall between 5% and 10%, while banks have also collectively set aside A$955 million in loan-loss provisions. Mortgages constitute approximately 60% of the “Big Four” lenders’ combined credit books, making them highly exposed to the housing sector.
