“The fear is if banks shift their capital to New Zealand, there is less capital in Australia and therefore they can’t invest in growth opportunities,” he says. Despite three more months of consultation, he expects the proposal to go ahead.
Lim reckons bank stocks have more to fall on the back of the banking royal commission. He says increased penalties are also likely, which will drive up the continuing cost of compliance.
In housing, Lim says banks have already pulled back from lending and housing growth will track the gross domestic product at 2.5 per cent, which is a “far cry” from 5 to 6 per cent few years ago.
The upcoming federal election and a potential change of government will add to the noise, but any proposed changes around negative gearing should not be an “upfront shock” to the banks, he adds.
“It will be a volatile year, we have the election coming up, it will be noisy,” he said. Lim has a hold rating for ANZ, CBA and NAB, and a buy for Westpac partly because it will be least affected by RBNZ’s proposal.
Drastic and draconian
David Walker, Clime’s large companies portfolio manager, says RBNZ’s “drastic and draconian” proposed capital rules, if implemented, will force Australian banks to tip significant amounts of capital into their New Zealand businesses.
Walker questions whether the proposal will go ahead given its potentially big implications for New Zealand’s small and vulnerable economy if banks reduce lending.
“The amount of capital required is not reasonable and RBNZ probably will have to back down,” he adds.
Either way, a further six to seven months of uncertainty are likely while banks respond to RBNZ’s request for consultation and wait for RBNZ’s final response, he adds.
Walker says the banks will be keen to close their divestment deals.
“Matt Comyn [the chief executive] at CBA has to meet APRA’s demand for $1 billion, fix the culture, keep investing in digital, make it through the end of the royal commission and deal with class actions,” Walker says.
“He doesn’t want wealth any more.”
He expects the big four share prices have a bit more to fall – about 5 to 10 per cent – before they remain flat over the year.
“All of that leads to a flat, difficult outlook for banks. The share prices will be slightly lower, [there will be] flat dividends and questions over the capital management.
“Investors need to look beyond the banking sector and we are finding opportunities in mid and small caps.”
from A Viral Update http://bit.ly/2TsaQiD
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