Aussie banks: debate over housing risk to come back

Although the Aussie banks was a standout sector through the 2022 August reporting season, with low levels of impaired assets and amid a period of falling house prices, the debate over housing risk will likely resurface in 2023, according to active equity manager Martin Currie Australia.

After a period of volatility, banks currently remained focused on monitoring the peak in interest rates and the strength of consumers. However, a number of ‘still to come’ pressures such as rising interest payments and fixed rate mortgages maturities coming to an end would revive the debate over bank sector earnings in the coming months.

Matthew Davison, portfolio manager at Martin Currie Australia, believed that for the near to mid-term banking earnings would remain solid, with ANZ being Martin Currie’s ‘preferred exposure’ and with active positioning also focused on Virgin Money, Bendigo and Adelaide Bank.

“We see that all these banks have ample exposure to rising rates and other factors that will support a positive P/E re-rating,” he said.

The material tailwind of higher rates for net interest margins (NIMs) would continue into 2023 and the weight of recent credit creation in the system would provide further support after banks had spent the beginning of last year concerned about the fallout from steeply rising rates, house prices, and credit risk.

“Banks were also one of the standout sectors through the 2022 August reporting season and November AGM period for upgraded revisions and share price performance. We are now seeing almost unprecedented top-line and pre-provision operating profit (PPOP) growth from the banks, and at least for now, impaired assets remain incredibly low,” Davidson concluded.