Australian Banking Sector

Submitted by Craig Strzelecki on 1 May, 2007 - 19:02

Market analyst UBS has provided an Australian banking sector update. System Credit strength continues in March +14.8%: 12 month credit growth at March-07 was 14.8%; comprising a steady increase in housing credit 14%, sound personal credit growth 12.1% & business credit maintaining high levels of growth at 16.6%. March growth was flat on February (revised down by APRA from 15%). 1H07 loan g: WBC strong c7%, SGB March uptick but only c2%: 1H07 loan growth for Majors (5.2%) was led by WBC with housing 6%, credit cards 8% & business 9%. SGB lifted credit card & housing loan growth in March but 1H07 total loan growth was only c2%. CBA continues to stay away from credit card growth (-1.1%) while it focuses on other personal loans growing at 12%. BOQ, BWA & Other Banks grew strongly in 1H07 at 10.2%. 1H07 deposit g: ANZ leading Majors c9%, BOQ strong c15%: 1H07 deposit growth for the Majors was 6%, with ANZ growing above Majors in both household & business deposits at 9%. NAB is gaining share in household deposits, growing 1.5x Majors. BOQ & BWA 1H07 deposit growth is strong at c15%, with BOQ easing in Business deposit growth in March. The analyst remains overweight on the banks with ANZ, WBC, CBA all having a Buy 1 broker call: They remain overweight banks. Key driver to the banking sector: (1) the economy is healthy, (2) credit growth is strong, (3) bank revenue growth is accelerating, and (4) credit quality remains sound. They believe bank valuations remain attractive, particularly at a 77% relative PE to Industrials.