What’s in store for the big four banks in 2020?

The banks have endured a turbulent few years as a result of increasing regulatory constraints, slowing credit growth, and the fallout from the royal commission. 2019 was no different, with the banks generating a total return of 9.5 per cent for the calendar year, less than half that of the broader market return of 23.8 per cent.

Of the major banks, the Commonwealth Bank of Australia was the standout performer, delivering a total return of 16.9 per cent – still below the return of the broader market. The worst performer was Westpac, with its share price hit hard toward the end of the year as a result of its weak full year result, a large capital raising, and the release of a statement of claims against it by AUSTRAC.

While loan book growth should improve marginally in the coming year, the major banks are likely to experience continued low growth due to increasing competitive pressure from second tier and non-bank lenders.

The increase in loan application activity should improve, but fee growth is likely to remain constrained given political and social pressures on fee pricing.

“Smaller lenders who rely on wholesale funding are benefitting significantly from falling benchmark interest rates, narrowing the gap in their funding cost relative to the major banks. This allows these smaller lenders to price mortgages and other loan products more competitively.”

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Stuart Jackson
Senior Analyst and Portfolio Manager

Prior to his departure in August 2022, Stuart was employed by Montgomery Investment Management for over seven years as a Senior Analyst and Portfolio Manager of The Montgomery [Private] Fund.

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