Australia’s big four banks tumble as CBA warns of credit slowdown

By Ambar Warrick

Investing.com -- Shares of Australia’s four largest banks sank on Wednesday after Commonwealth Bank, the biggest of the lot, flagged a potential slowdown in credit conditions due to pressure on consumers from high interest rates and overheated inflation.

Commonwealth Bank Of Australia (ASX:CBA), Westpac Banking Corp (ASX:WBC), National Australia Bank Ltd (ASX:NAB), and ANZ Group Holdings Ltd (ASX:ANZ) saw their shares fall between 4% and 6.5%. CBA was the worst performer for the day, with its shares trading at an over one-month low.

CBA, Australia’s biggest bank by market capitalization marked a cash profit of A$5.15 billion (A$1=$0.6976) for the six months to December 31, up from A$4.75B in the prior year. The bank also hiked its interim dividend to A$2.10 per share from A$1.75 last year.

But the bank logged bigger loan impairment expenses during the six months and said that credit growth slowed amid increased inflation, rising interest rates, and a depressed property market.

The slowdown in the property market also weighed on the outlook for the bank’s mortgage business. Growth in home loans slowed in the six months to 5% from the prior year, compared to a 7% rise seen in the prior year.

“We expect business credit growth to moderate and global economic growth to slow during 2023. However, we remain optimistic that a soft landing for the Australian economy can be achieved,” CEO Matt Comyn said in a statement.

While the bank has so far benefited from rising interest rates, this could eventually turn against CBA’s favor as economic growth and consumer credit weaken due to rising rate pressures. This trend is also likely to be reflected in the earnings of its peers, which are all primarily consumer-focused banks.

Australia is set for a sharp slowdown in economic growth this year due to high inflation and as the effects of steep interest rate hikes through 2022 begin to be felt. The Reserve Bank warned of such a scenario during its February meeting, and said that the path to achieving a “soft landing” for the Australian economy was narrowing.

The RBA hiked rates by a cumulative 325 basis points from record lows. But the hikes have so far had a limited impact on inflation, with price pressures trending at over 30-year highs.

Losses in heavyweight bank stocks weighed on the ASX 200 benchmark, which fell 1.2% on Wednesday.