A- A A+

Are the banks a buy?

02 June 2015  |  Investing

BankIs the weakness in the banks' share prices a buy signal? Brokers tend to be a bit ambivalent. The general conclusion is that mortgage lending is strong -- hardly surprising when one considers that even the Reserve Bank is talking about a 'bubble' in Melbourne and Sydney -- but business lending is weak. This is Goldman Sachs' take:


"Private credit growth higher, business credit growth stalls

Private credit growth (RBA) increased in April with total credit growth at +0.3% mom / +6.1% yoy. Business credit growth was weaker yoy compared to last month (5.0% yoy vs last month 5.4% yoy). Housing credit remained stable while personal credit growth remains subdued.

  •  Housing credit: +0.5% mom / +7.2% yoy.

  •  Personal credit: -0.1% mom / +0.6% yoy.

  •  Business credit: +0.0% mom / +5.0% yoy.


    In the last quarter, M3 (+9.0% 3m annualised, +7.7% yoy) continued to outpace system credit growth (+5.2% 3m annualised, +6.1% yoy).

    NAB continues to lead on mortgages but business lending remains weak
    Banking lending (APRA) grew +0.5% mom / +7.6% yoy.

  •  Mortgage growth +0.7% mom / +7.4% yoy. Major banks’ mortgage growth diverged in the quarter to Apr-15. NAB, ANZ, WBC, and CBA grew their mortgage book (3-month annualised growth) at 1.3x, 1.0x, 0.8x, and 0.8x the industry average, respectively.

  •  Business lending growth to non-financial corporations (NFCs) +0.3% mom / +8.6% yoy. CBA led the majors, growing at 2.1x industry average in the quarter to Apr-15. NAB’s growth continues to trail below the industry average (0.7x).

  •  MQG’s strong momentum in mortgages continued, with 41% yoy growth, which equates to 5.9x the bank industry average."


UBS comes to a very different conclusion:




"Decomposing the uplift in business credit growth

One of the bright spots in Australian banking has been the pick-up in business credit, +5.4% during the year to March. However, the recent reporting season highlighted limited credit growth in the SME & corporate segments. So what is happening? We have found four moving parts: (1) Reintermediation from credit markets - with many institutions returning to the banks rather than issuing corporate bonds. This has added 1% to business credit growth. (2) The falling AUD – RBA credit aggregates incorporate non-AUD loans to residents on domestic bank books (ie. excludes offshore subsidiaries, branches & OBU's). This accounts for ~5% of business credit. Given the AUD fall, this has added 0.9% to business credit growth. (3) Commercial Property credit has grown strongly, up 8.6%. This has added 1.8% to business credit growth. (4) This leaves underlying business credit growth (ex CRE) at a subdued 1.7%. This is consistent with the recent weak capex and construction data.

April credit slows to 0.3%. Has housing credit growth finally peaked?

Credit growth was subdued in April, rising 0.31%, its softest month since March 2013. This took the annual growth rate down slightly to 6.1%. Importantly, housing credit growth now appears to have peaked at 7.2%. This is made up of 5.7% growth in Owner Occupied and 10.4% in Investor Housing. Given recent APRA initiatives and bank credit rationing, we expect Investor Housing credit to begin slowing back to ~9%."

Take your pick.




Source articles

Similar articles from Investing

The gambler's mistake

 | 6/14/2015

GamblerResearch is emereging that the retirment outcome for super savers varies greatly depending on market fluctuations. The aim should be to get a good result despite those fluctuations.

In defence of dividend imputation

 | 6/3/2015

Fact Dividend imputation is being criticised in some quarters as a tax lurk for investors. It is a very simplistic picture.

Rising rates a seminal point

 | 5/26/2015

pointThere are indications that the US Federal Reserve will soon start to raise interest rates. It is a sign that the unique investment conditions caused by the GFC are starting to alter.

More questions over the bank sector

 | 5/25/2015

BanksectorBanks have been the safe haven for SMSF investors. But they now dominate the ASX. Is it time to take a close look?

Problems with the yield play?

 | 5/24/2015

yieldBuying Australian shares for their dividend yield has been a sound strategy for DIY super funds. But with earnings coming under pressure there may be some difficulties looming on the horizon.



Subscribe to the Personal Super Investor weekly email to keep abreast of developments in SMSF law and investment markets. SMSF investors looking to improve investment returns from shares, property, cash or other specialised investments, will find the PSI weekly newsletter an invaluable resource.

Subscribe now »



The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives, financial situation or particular needs. Our content is not intended to be advice and must not be relied upon as such. You should seek independent advice tailored to your specific circumstances prior to making any decisions. Personal Super Investor does not provide financial product advice or recommend any financial products: Where this website or it derived newsletter/electronic publication refers to a particular financial product, whether it be within our editorial or a 3rd party advertising, advertising promotion or advertorial, then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. We do not make any representation or warranty that any material on the Personal Super Investor website will be reliable, accurate or complete, nor do we accept any responsibility arising in any way from errors or omissions of our content or any content provided by any advertiser appearing the Personal Super Investor website. We will not be liable for loss resulting from any action or decision by you in reliance on the Material (whether editorial or advertising) on the Personal Super Investor website, nor any interruption, delay in operation or transmission, virus, communications failure, Internet access difficulties, or malfunction in your equipment or software. By using the site you acknowledge that we are not responsible for, and accept no liability in relation to any content contained on the site that you may use, including any other users’ use of the Personal Super Investor website in any circumstance. You use the Personal Super Investor website at your sole risk.