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Preston 9 June,2022(TIE)Fears that a more aggressive policy tightening by the Reserve Bank might produce a recession and a blowout in bad debts prompted nervous investors to slash $18 billion from the worth of big banks.
As the major four passed on the RBA’s unexpected 50-basis-point rate hike in full to their variable-rate clients, Morgan Stanley predicted that borrowers would face a large annual interest expense increase of up to $35 billion if rates continued to rise.
NAB chairman Phil Chronican, on the other hand, claimed that many of the bank’s customers were ahead on their payments, which would assist to mitigate the financial impact.
“When you take into account the combined effect of this, as well as rising gasoline prices and household energy expenditures,” the author argues.
We should recognise that household finances are under a lot of stress right now, and we’re sympathetic to that.
“Any consumers who are having financial difficulties are encouraged to contact us.”
Westpac led the major bank share price decline, falling $1.43, or 6.1 percent, to $21.98, while Commonwealth Bank fell $4.49, or 4.4 percent, to $97.47.
National Australia Bank fell 4% to $28.91, while ANZ down 2.3 percent to $23.89. ANZ is the least exposed of the four to the troubled mortgage market.
The prognosis for the industry has shifted since the half-year reporting season, according to UBS banking analyst John Storey, with inflation concerns and more hawkish central bank advice.
A “rapid and aggressive” rate cycle, according to Morgan Stanley’s equities analyst Richard Wiles, presented more hurdles for banks than a “gradual and measured” tightening cycle.
Mr Wiles warned on Wednesday that assuming variable rates rise by 1.5-2 percent by the end of next year, mortgage borrowers of the main banks might face a large increase in yearly interest charges of up to $35 billion.
According to RBA data, the average fixed-rate loan rate was 0.65 percent lower than variable rates, implying that borrowers with fixed-rate loans that were about to expire faced an interest rate increase of 2.15-2.65 percent.
Mr Wiles estimates that the main banks have originated $400 billion in fixed-rate loans in the 2019 financial year, resulting in yearly interest charges for borrowers migrating from fixed to variable rates of $8.5 billion to $10.5 billion.
