Here is an update on the Australian banking sector provided by Australian market analyst UBS.

Australian Banking Sector- Credit growth - is this the tipping point?

March credit growth: 0.8%: business 0.9%, personal -0.2%, housing 0.8%:

March system credit grew at 0.8%; driven by: (1) good headline growth in business lending 0.9%, although higher due to Feb revision down from 0.5% to 0.3%, (2) sharp slowing in personal credit growth - .2%, the second negative month this yr, (3) housing credit growth stable at 0.8%, with non-banks share continuing to slow.

Is March the tipping point?:

While March data appears reasonable we believe there are signs of a substantial slowdown in credit growth. (1) Housing: 11.2% yoy vs 9.9% March (annualised) (2) Personal: 9.8% yoy vs -2.9% March (annualised) (3) Business 21.4% yoy vs 11.4% March (annualised)

We believe this reflects: slowing demand for credit given decreasing consumer & business confidence/sales, higher rates & re-pricing (rationing) of credit by banks.

Who's growing in credit cards? SGB, SUN and BWA:

Given concerns over economic stress are now turning to the consumer we thought it prudent to highlight the banks growing in credit cards. BWA has the strongest growth at 7.3% in March (off a low base), followed by SGB 1.5% in March (8.1% six-month-alised), and SUN 1.1% in March (9.1% six-month-alised).

Remain cautious on Sector. PE now 11.0x FY09E.:

We remain cautious on the sector given: (1) "bad boy" event risk, (2) slowdown in credit demand imminent in our view with c39bp in rate hikes still to fully impact consumers & as bank continue to pass higher funding cost on to businesses.