A few wins for the banks. Are they back on track? After a very tough 2Q when everything seemed to go against them, the banks have had a few big wins in recent weeks. Most importantly, APRA’s light-touch definition of ‘unquestionably strong’ capital even took the bankers by surprise, while the likely blockage of the proposed South Australian Bank Levy and recent mortgage repricing are positive signs. This leads to the question – are we past the worst for the banks?
The Bull Case (1) Capital concerns have now passed and further state based Bank Levies look less likely. This is an illustration that the global regulatory pendulum is swinging back in the banks’ favour. (2) The latest round of mortgage repricing demonstrates the pricing power the banks maintain with NIM expansion likely to offset slowing credit growth. (3) Substantial cuts to mortgage broker commissions look inevitable. (4) Positive jaws should ensure reasonable PPOP growth, while falling unemployment and high business confidence should ensure asset quality strength remains. (5) Banks will likely soon be in a position of excess capital and the market may begin to factor in special dividends or capital returns. (6) Aussie banks are becoming more ‘utility-like’ justifying a PE re-rating.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
