Banking sector update provided by Australian sharemarket analyst Macquarie Research. The analysts still prefer the banking sector and their company preference in order are: WBC, CBA, ANZ, SGB and NAB.

Banking Sector: Where is the Banking Sector Heading?

“History proves that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse” - a quote recently made by the current US Federal Reserve Chairman Ben Bernanke. As to whether the US Fed has been “smart” in their monetary deliberations over the last six months will likely be the subject of much scrutiny over the next couple of years. So where is the Australian banking sector heading? And what are the implications for recent market behaviour?

Banking Sector Impacts

Macquarie Research Equities (MRE) highlights some of the recent impacts experienced by the Australian Banking Sector:

• Banks underperformed the market by 1.2% last week. The strong start to last week by key banking stocks was attributed to short covering and positive news from the US. However, this was later offset by the re-emergence of credit concerns. Not only did the major players post respectable gains, CBA -8.7%, NAB – 2.9% and ANZ – 0.9%, the regional banks such as Bendigo (BEN) managed to add 13.5% and Bank Of Queensland (BOQ) gained 9.9%.
• Small Easing of basis risk, upside risk to mortgage margins in FY09. The spot 90 day bank bill rate eased last week from 75 bps to 60bps due to supportive measures provided by the US Fed. There was also a reduced expectation for additional official cash rate hikes. In addition to this major banks repriced their variable rates which should improve mortgage margins over the medium term.
• SGB launched the first Australian ABS issue this year, however, pricing remains a hurdle for mortgage related issuances. SGB re-entered the Asset Backed Securitisation (ABS) last week by issuing $341m worth of securities backed by auto loan receivables – the security was priced 70 bps above the 30 BBSW. And whilst pricing is high, MRE feel that it is quite encouraging that the ABS market remains open to wider margined asset classes.

MRE also emphasise that their sector preference remain unchanged in the order of WBC, CBA, ANZ, SGB and NAB. Global credit fundamentals and liquidity concerns have certainly plagued this sector over recent periods. Recent decisions made by the US Federal Reserve seemed to have had some impact on sentiment around the global banking sector. And whilst it has been said that the Australian Banks are somewhat limited in their direct sub-prime exposure they still remain susceptible to overseas influence.