Like CBA, back in Feb, NAB had some fairly negative views to share.

NIM’s peaked over a quarter ago, with deposits/funding repricing quicker than loans, due to competition on either side.

NAB also grew much slower than system (0.6x, ceded share) saying that they would like to pull back from the residential mortgage market, essentially given froth.

CBA said that industry wide, loans were being written below cost of capital.

Here’s a thought.

Bank A says they are stepping back from the market. Bank B says they are growing at market, but that the industry is writing loans < cost of capital. A would seem wiser than B if so, by participating less in a sub-rational market.

There is an outlier, that is well worth paying attention to, on valuation grounds.

Now both NAB and CBA posted decent arrears data. There is very little sign of stress, yet.

The market is worried that signs will emerge, and that BDD’s will rise.

I will never forget an Executive Manager of a banking team, at my old employer, asking what BDD’s stood for, but every time I type the words I feel compelled to add, “bad and doubtful debts”.

We think those stresses will emerge, which is why it is pleasing that banks have, in general, built up decent equity buffers. They will be needed.

We don’t own NAB, or CBA, but do own ANZ and WBC, on valuation grounds, and to maintain the sector exposure.

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