Australian loan growth continues to flatline
Reporting season is coming up for our major banks, and recent data provided by the Australian Government regulators shows that it may be a bumpy ride ahead.
Overall market loan book growth has continued to gradually slow over the last 6 months according to RBA credit aggregates data as at the end of February. This is due to the tightening of credit approvals, weak residential property markets, weak wages growth and already stretched household balance sheets.
Business lending growth has held up better than mortgage loan book growth. In terms of the contribution to overall system loan book growth, mortgages have fallen, with an acceleration in business lending growth acting as a partial offset. This should favour National Australia Bank (ASX:NAB) and Australian and New Zealand Banking Corp (ASX:ANZ), given they are relatively more exposed to business lending than the Commonwealth Bank of Australia (ASX:CBA) and Westpac (ASX:WBC).
While the main source of mortgage book growth weakness had been lending on investment properties, the data is now showing a slowing of loan book growth for owner occupied mortgages.
Within the mortgage market, the smaller lenders are continuing to gain share at the expense of the big 4, while the performance of the larger regionals and Macquarie has improved over the last two years. This is mainly due to strong growth for Macquarie, while two of the three large regions are seeing no mortgage book growth. Bendigo & Adelaide bank is growing its book above system rates.
Source: RBA, APRA
Among the major banks, ANZ has seen the most significant reduction in the growth of its mortgage book. Whether this is due to a conscious decision to reduce its exposure to residential mortgages due to perceived system risk, or if it is a consequence of its high reliance on mortgage brokers for originations relative to the other majors is unknown at this stage. But this will act as a drag on net interest revenue growth.
Interestingly, ANZ is showing the strongest business loan book growth of the majors, while CBA’s growth is negligible. This would suggest that ANZ’s weak mortgage book growth is more likely to be a shift in risk preference toward business lending. For CBA, the weak growth in its overall business loan book is likely to be the result of a continued rationalisation of its institutional lending book. Given this is generally lower margin lending, the upcoming results could show a positive impact on net interest margin from mix, offsetting the soft loan book growth.
When the data is combined, both CBA and ANZ are showing the greatest fall in loan book growth as at February relative to the same time last year.
The Montgomery Funds own shares in Westpac and National Australia Bank. This article was prepared 16 April with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.