Sell Aussie banks on macroprudential?

Without putting too fine a point on it, macroprudential tightening has been bad for Aussie banks in the past. The last time a campaign was launched, Aussie banks fell for five years and diverged enormously from US banks:

There were other factors. The Hayne Royal Commission and COVID-19 but I’m sure you get the point. Banks don’t like macroprudential tightening. It stalls front book growth and squashes back book margins as funding rates fall, plus it lifts delinquencies.

There are two other reasons for concern today. First, bank valuations are just as high as 2015 and CBA remains crazy:

And, unlike 2015 when the commodity cycle was bottoming and about to flush Australia with cash, today it is topping and about to do the opposite.

Australia is not going to have an inflation problem. As the energy bubble pops, it will have a deflation shock.

Banks will suffer on all counts.

Houses and Holes
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