The trend of shrinking bank margins is set to reverse, with Citi analysts tipping a return to pre-pandemic levelsCiti analyst Brendan Sproules has dramatically upgraded his outlook for the banks, and is now forecasting increases of more than 10 per cent in cash earnings across the sector by the end of financial year 2024.Fairfax Media
ANZ and Westpac have struggled to grow revenues by chasing more market share in mortgages in the face of intense competition among the banks, with some analysts concerned thatBut Mr Sproules said because all the banks have similar deposit compositions, the resulting cashflow from higher interest earnings on deposits will close the gap between “asset-growing” National Australia Bank and Commonwealth Bank and the “revenue-challenged” ANZ and Westpac.
“Ultimately the TFF wasn’t required and banks looked [for] and found duration-matched assets to invest the newly found liabilities. This created the largest fixed rate mortgage boom in living memory with customer rates tumbling reflecting the cheap cost of the TFF as well as the strong competitive dynamic that ‘giving the funding to everyone’ creates.”
With most borrowers expected to revert to variable rates, a normal level of spread is likely to be obtained.