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Australian Banks: Margin upside prevails in war with housing risk

Reporting and AGM season updates reveal the risks and opportunities for the bank sector.

But debate over housing risk is likely to resurface

It seems that despite house prices continuing to fall throughout 2022, bank investors have now shrugged off earlier concerns, now focusing more on the peak in rates and evidence of consumers staying stronger for longer with adequate buffers to handle stress. However, the pressure from rising interest payments and fixed rate mortgage maturities is still largely ahead. We expect the debate for the banks sector earnings will swing back again as greater evidence for consumer pressure emerges.


Source: Martin Currie Australia, Australian Bureau of Statistics (ABS), Reserve Bank of Australia (RBA); as of 16 December 2022.

Sector is resilient for now, and ANZ remains our preferred exposure

Despite looming consumer pressure, we believe that bank earnings will continue to look solid for the near to mid-term, with the NIM tailwinds to be ongoing in 2023. The sheer weight of recent credit creation in the system is also providing support.

For our Value Equity strategy, our active positioning within the banks sector is most focussed on Australia and New Zealand Banking Group (ANZ), Virgin Money, Bendigo and Adelaide Bank. We see that all these banks have ample exposure to rising rates and other factors that will support a positive P/E re-rating.

While we have had a particularly positive outlook for ANZ Bank for some time, the negative market narrative on the bank’s mortgage volumes and the ANZ Plus digital banking move has improved since July when the company announced a more positive NIM outlook, embedded in a press release around their Suncorp Bank acquisition. To us, ANZ Bank remains the preferred major bank through  this period of rising rates.

Past performance is not a guide to future returns.

The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.