Bank shares still on a rocky road

INCREASED regulatory scrutiny, potential east coast housing bubbles and high household debt mean shares in the big four banks are unlikely to recover recent losses any time soon, a leading banking analyst says.

UBS analyst Jon Mott said mortgage repricing had offset the impact of the Federal Government’s bank levy and alleviated pressure on earnings, but he warned that the APRA inquiry into Commonwealth Bank showed the major lenders still face headwinds.

Shares in ANZ, National Australia Bank and Westpac have dropped by about 12 per cent since the Government announced the bank levy at the start of May.

CBA — the target of Federal Court proceedings by one regulator, an investigation by another, and an inquiry by a third — has fallen about 14 per cent over the same period.

“The medium-term outlook remains challenged given the highly leveraged consumer, limited household income growth, Sydney and Melbourne housing bubbles and ongoing political and regulatory pressure,” Mr Mott wrote in a note to investors.

The Australian Prudential Regulatory Authority on Mon- day announced an inquiry into CBA’s governance, culture and accountability following a series of scandals including possible breaches of money laundering and terrorism funding laws. The Australian Securities and Investments Commission has launched a separate probe and a shareholder class action over the issue is in the pipeline.

Mr Mott said the big banks also needed to further reduce interest-only mortgage lending.

The quartet reported 30.5 per cent of June quarter mortgage approvals were for interest only loans, still above the 30 per cent APRA cap.