Not much exciting about Aussie banks as high costs pressure earnings - Macquarie

Bank of Queensland

22/09/2023 05:03

Sept 22 (Reuters) - Rising wage costs and higher
investment spending by Australian banks pose headwinds that
could potentially impact the sector's earnings by up to 10% in
the near term, analysts at Macquarie said on Friday, downgrading
their sector rating to "underweight".
    Australia's "Big Four" banks - among the top seven listed
companies in the country - control 75% of the country's A$2
trillion mortgage market.
    Over the past two years, Australian banks have benefited
first from a property boom on the back of Covid restrictions and
then from interest rate hikes totalling 400 basis points.
    That euphoria is now largely over as high living costs
impact borrowers' capacity to repay loans.
    Macquarie, an investment bank with a small retail banking
operation, said banks' cost bases are likely to remain under
pressure as more than 70% of their expenses related to
personnel.
    "The industry's weak track record of managing expenses, even
in periods of subdued inflation, suggests expense growth will
likely continue to disappoint in the current environment," the
analysts wrote in a note.
    Macquarie added that it expects banks' expenses to grow by
around 1% to 7% in fiscal 2023 through to fiscal 2025, with
third-biggest lender Westpac Banking Corp  WBC.AX  seen being
impacted more than its peers.
    The brokerage cut its earnings estimates for ANZ Group
Holdings  ANZ.AX , CBA  CBA.AX  and NAB by around 1% through to
fiscal 2025, while downgrades were more significant for regional
banks such as Bendigo and Adelaide Bank  BEN.AX  and Bank of
Queensland  BOQ.AX .
    The regional banks will remain disadvantaged in the current
environment as they will have to continue to invest to keep up,
Macquarie said, estimating up to 4% higher expenses than
consensus.

 (Reporting by Sameer Manekar in Bengaluru; Editing by Janane
Venkatraman
)
 ((Sameer.Manekar@thomsonreuters.com; Twitter: https://twitter.com/sameer_manekar))