The banks are under considerable pressure, today, and yesterday.

We are 500bps underweight the banks and positioned in what we regard as the cheaper names (ANZ, WBC).

The point of the note is housing finance data had to roll. It was far too hot over the pandemic. To our minds, it was the cherry-on-top bit of macro data in a market that was already over-extended, with housing (house prices) over-valued and households over-leveraged.

The below suggests revenue pressures, at the margin, as conditions cool, and earnings pressure as mortgage rates rise, causing bad and doubtful debt charges to rise.

Whilst we are 500bps underweight, we were mindful, however, that a rising rate environment could well lead to NIM expansion, as mortgages reprice quicker than liabilities (e.g. term deposits), particularly if it took some time for arrears to begin to move.

We didn’t want the banks to race ahead on that rosy “goldilocks” view, so we narrowed the underweight from ~900bps to ~500bps.

Given the past two days, I wish we hadn’t done that, but the sell-off is not hurting us in a relative sense.

(NB, that graph is from a mix of data sources (RBA, Bloomberg, ABS) and usually operates at a monthly lag as the information is collected. Thus, it doesn’t take into account moves this week on the TD or mortgage rates. The Aussie government bond yields and cash rate are, of course, daily. It does mean we have to look at things like the bank websites for comparisons intra-month.)

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