CBA share price: Rising interest rates are bad news for bank stocks

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Another cash rate increase would do more damage to arrears than it would help net interest margins, according to Morgan Stanley.

Already a subscriber?A return to tightening by the Reserve Bank would penalise the major bank stocks and dent momentum in the mortgage market, negating the assumed benefit from improved lending profits from passing through a possible August cash rate increase.

Another RBA increase would be “bad for sentiment, making investors more cautious on the outlook and the major banks vulnerable to a de-rating,” said Morgan Stanley analyst Richard Wiles.In addition, further tightening would “slow momentum” in home lending, after the market has been showing signs of recovery. Figures released by the prudential regulator on Friday for mortgage lending in May showed growth increased to an annualised rate of 5.5 per cent, in line with household deposit growth.

“Westpac and CBA’s momentum in home lending continued in May, together accounting for over 50 per cent of net new mortgages in the month, with Westpac pushing most strongly into the owner-occupied segment, and CBA in investor ,” Mr Storey said. Treasurer Jim Chalmers said at the weekend he was “confident but not complacent” that the consumer price index could return to Treasury’s 2.75 per cent estimate by December this year. But thesays underlying inflation would not return to the 2 per cent to 3 per cent range until June next year.

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