SYDNEY: Australia’s major banks kick off their reporting season this week with their shares suffering the worst start to a year since the global financial crisis, as a slowing mortgage market and tighter capital rules crimp margins and profits.
Analysts expect Commonwealth Bank of Australia to post its slowest half-yearly revenue growth since June 2014 on Wednesday, as one of the world’s most profitable banking sectors comes under pressure across multiple fronts.
Several brokers, including Goldman Sachs and Morgan Stanley, predict the banks’ dividends – among the highest in the world – may be cut as regulators ask them to keep aside more capital and on growing risks of higher loan losses.
As a result of the tougher capital requirements, banks are slugging it out in the mortgage market, their biggest source of revenue, putting further pressure on margins which are already at record lows. “There is still uncertainty this year on how much more capital they need, that’s an overhang,” said Omkar Joshi, investment analyst at Watermark Funds Pty Ltd.
The “Big Four” banks including National Australia Bank , ANZ Banking Corp and Westpac have together raised over A$20 billion ($14.42 billion) since May 2015 as regulators try to make them among the safest in the world. “There is no real credit growth and that’s part of the reason why margins are under pressure. That’s why there is so much competition for lending,” Joshi added.
To offset these growing pressures, banks need to raise mortgage rates. But analysts said a slowing market after recent property booms in Sydney and Melbourne could force them to wear the higher costs of doing business. “Banks are jostling for more market share and are starting to bring out some sweeteners to attract customers from rival banks,” Tony Bice, managing director at broker Mortgage Choice.
