Against the backcloth of higher rates for longer, many of the Australian banks will provide trading updates over the next couple of weeks. As a group, they currently have the highest set of valuations seen for decades, but then, their earnings have held up relative to expectations. So what is ahead? And are all banks equal?
Some analysts are saying that although banks have flat to negative growth coming up for this year, from a capital management perspective, they’ve all got excess capital, so there will be more buybacks and special dividends to come. So the high valuations are just fine. But not everyone is convinced. Citi’s downgrades come a month after Macquarie told its clients to “underweight everything” in the banking sector.
But it’s worth highlighting that not all banks are created equal, because regional banks including Bendigo and Adelaide Bank, and Bank of Queensland are under the pump and look to be dying a slow death because of higher cost of funds compared with the big four banks, higher capital requirements, the upward pressure on costs from upgrading technology and lack of scale.
Treasury, the RBA and APRA need to ask themselves whether they are happy to ultimately have a financial services sector dominated by the big four banks and Macquarie. This is why a public bank, providing essential banking services to communities should be part of the solution, something which we hope will be tabled in the final report from the Senate looking in Regional Branch closures. As major banks leave smaller population centres without services, we need a valid alternative. We will discuss this again on Tuesdays live show at 8pm Sydney with Robbie Barwick.
Meantime, the larger players continue to buttress their profits, at the expense of ordinary Australians, and while the market like the high valuations, Australia INC is the poorer.
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