Rot ends in loans but no bounce

HOME loan growth across the big banks looks to have bottomed out, but there is “little prospect of a meaningful rebound” this year, a leading investment bank says.

An increase in scrutiny of lending practices and stronger competition from smaller lenders are among factors likely to prevent a significant recovery, Morgan Stanley says.

Morgan Stanley says the “downward pressure” on profit margins at the major banks is also intensifying. It says revenue at the banks is likely to fall this financial year.

Rate cuts and strong competition for new customers are among the dynamics likely to weigh on profit margins.

The value of home loans issued by the big banks climbed at an annualised rate of 1.5 per cent in November. There had been no growth the previous two months.

The Morgan Stanley report also says that for most of the past decade, mortgage growth has “tended to move in the same direction” at all four lenders – the Commonwealth Bank, Westpac, ANZ and National Australia Bank.

But it says there was a divergence last year for four reasons: lower loan growth broadly; increased competition from smaller banks; scrutiny around responsible lending following the banking royal commission, and; measures by regulators to ensure sound lending practices.

The CBA is outpacing other lenders, driven by growth in loans to owner occupiers, according to Morgan Stanley’s research.

ANZ’s mortgage book “is no longer shrinking” and NAB is faring well among owner occupiers but its pool of loans to investors is shrinking faster than at its peers.