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Highlights
Macquarie maintains a cautious stance on ASX bank shares following the recent RBA rate cut
Lower earnings outlook and slowing business credit growth weigh on future performance
NAB remains Macquarie's most preferred exposure in the sector, but with a neutral view
The Australian banking sector, a significant component of the S&P/ASX 200 Index, continues to be under close observation following the latest policy shift by the Reserve Bank of Australia. The interest rate cut has intensified focus on major financial institutions such as Westpac Banking Corp (ASX:WBC), Commonwealth Bank of Australia (ASX:CBA), National Australia Bank Ltd (ASX:NAB), and ANZ Group Ltd (ASX:ANZ).
Macquarie's Outlook on Bank Earnings
Macquarie Group Ltd (ASX:MQG) remains underweight on the sector, reflecting caution around the earnings trajectory of the major banks. According to the firm, the market may not yet fully reflect the earnings impact of reduced interest rates. A subdued earnings environment is expected heading into the next financial year, with earnings per share at of being revised lower over time.
Macquarie has drawn attention to the deceleration in business credit expansion. Indicators now show annualised growth rates moderating significantly from earlier years, a period of slower business lending ahead. Key signals from company formation data and recent business activity surveys point to softer growth prospects. The firm highlighted that current trends in business credit may fall below longer-term averages.
Mortgage Lending and Growth Dynamics
In terms of mortgage lending, the major banks are showing mixed performance. Commonwealth Bank and National Australia Bank have been growing moderately below the broader system, while ANZ Group is expanding at a pace closer to system growth. Westpac Banking Corp continues to lag its peers, affected in part by the planned reduction of the RAMS mortgage portfolio. Adjusted for this, its growth still remains below its counterparts.
Bank of Queensland Ltd (ASX:BOQ) is witnessing a contraction in its mortgage book, a trend not aligned with the broader system's trajectory. Across the sector, the divergence in growth rates indicates uneven momentum among banks in their lending activities.
Deposit Repricing and Margin Pressures
Macquarie also pointed to the evolving situation in deposit pricing. While most major banks have taken steps to adjust savings deposit rates in response to the cash rate cut, Commonwealth Bank has refrained from some of the deeper reductions seen among its peers. Westpac, for instance, executed a significant cut in bonus saver base rates without major customer attrition, customer tolerance for such moves.
Despite this flexibility, lower interest rates are expected to exert downward pressure on bank margins. The challenge lies in the banks' ability to lend out interest-free deposit balances at rates lower than those seen at the start of the year. This narrowing spread between deposit and lending rates may influence bank profitability in a lower rate environment.
Business Lending Variability Across Institutions
Business lending performance also varies among the major banks. Commonwealth Bank, National Australia Bank, and Westpac appear to be expanding their business loan books more robustly than the broader system, while ANZ is trailing. These trends reflect differing strategic focuses and market positions among the institutions.
Amid these dynamics, National Australia Bank is currently viewed as the most balanced exposure by Macquarie, though the firm remains neutral on its outlook. The broader view remains cautious on the sector overall, given the existing earnings landscape and credit growth moderation.
