The big banks’ earnings growth will flatline in the year to June 2024 from a 20 per cent rate in the current financial year as tougher competition for deposits and mortgages and lower credit growth due to higher interest rates bite, Goldman Sachs has warned.
Morgan Stanley says bank investors are weighing up the competing forces. “For now, margin expansion and resilient credit quality underpin the earnings outlook,” said Morgan Stanley analyst Richard Wiles in a note on Monday.“However, the size and speed of the tightening cycle creates the prospect that weaker volume growth, declining margins, higher costs and rising loan losses weigh on the banks’ share price performance in the second half of 2023.
The earnings slump will be caused by intense mortgage competition, as more deposit pricing competition emerges this year. “So banks need to use this time prudently and boards and management teams have to be brave and make some hard decisions now to pre-position for that, including accelerating legacy system decommissioning, reducing duplication and automating operations.”