Are the banks a buy?
02 June 2015
Is 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.