Australian Banking Sector Updates

Here is an update on Australian Banking Sector from market analyst Macquarie Research Equities.

Credit growth, goodbye to the highs

April credit growth 0.4%: business 0.1%, personal 0%, housing 0.7%:

April system credit grew just 0.4%; driven by (1) business lending growth of 0.1% from 0.8% in March, vs 1.7% in April-07, (2) flat personal credit growth, includes slowing margin lending (3) housing moderating to 0.7% (o/occupied 0.8% & investment 0.5%). April-08 annualised is significantly below 12-month rolling: housing 9% vs 11.1%, personal 0.5% vs 9.8% & business 1.4% vs 19.2%.

Is Business credit growth falling towards 16%?:

System business credit growth was flat in March at c0.1% but 12-month growth was still strong at 19.2%, c2.5% above the same time last year. Feedback from banks post results: (1) businesses (SME, Corporate & Insto) are deferring investment plans, (2) re-intermediation has run its course. We believe near term growth is likely to track back towards pre-credit crisis levels c16%, then continue to pull-back to single digit levels as the economy slows & rate rises bite.

Leading April credit growth: ANZ, BOQ & BWA:

ANZ, BOQ and BWA led banks on credit growth in April up 1.7%. ANZ's growth is largely through business lending 3.1%, while BOQ housing & BWA Personal.

Neutral Sector, some risk from upcoming US Broker results.:

We remain Neutral the Banks at a PE of 10.7x FY09E. Positives: (1) "bad boy" work-outs underway, no new exposures, (2) systemic credit quality sound, (3) funding concerns being addressed (4) claw-back of margins underway (extra 40bp in rate hikes). Risks: (1) consumer stress, threat of further cash rate increases, (2) credit growth slowing imminent, (3) negative commentary from US Broker results.