Sentiment takes a negative turn
There are a large number of headwinds for Australian bank earnings, says UBS banking analyst Jonathan Mott.
For many years the market reacted positively to banks that grew their lending books, driving stronger revenue and earnings, he says.
“However, as the housing correction continues, and with the banks under pressure to comply with responsible lending and tighten ‘lax’ underwriting standards, we believe this is no longer the case.”
Mott says the risk of a credit crunch is rising as credit availability tightens and the housing market slows. There is a change in conditions, and a growing market share in investment property lending is no longer viewed positively by the market but seen as a sign of risk taking.
“We remain very cautious on the banks,” he says.