Australian Banks "AIC Conference: Australian Bank Questions" Storey

Research evidence excerpt

Australian Banks "AIC Conference: Australian Bank Questions" Storey

Australian Banks UBS Research

Burning Issues, and top sector questions/debatess

The Australian banking sector is pivoting through a volatile period with exogenous

shocks to asset quality from the Middle East conflict and also fall-out from tax

changes related to the Federal Budget likely. Current sector multiples don't yet fully

reflect a sector in transition, in our opinion, moving away from a benign credit and

interest rate tailwind environment to one of rising provisions, slowing mortgage

growth and policy adjustments. Investors are rightly questioning if these budget tax

changes shift investor mortgage growth (20% of total system credit) structurally

lower, and whether bank earnings can still compound and grow through deposit

margins, higher business lending and cost out productivity while credit risk is no

longer benign? The banking sector has already seen ~4.5% earnings downgrades

over the past 3 months, with NAB seeing the sharpest negative earnings revisions.

Consensus earnings have not yet factored in the implications of the Federal Budget

changes. As a result, bank stocks remain in a holding pattern, awaiting greater

clarity on both the expected and unintended impacts of these changes on the

sector, in our view. Below are our recent views on the Budget and post results wrap

for the sector:

Australian Federal Budget ...Bank Sector Implications

Housing implications from the Federal ...

1H26 Wrap: Provisions, Policy & Profits

Budget deficits beat slightly, but deb...

Cross-sector questions for Australian bank management teams:

1. Are the proposed tax changes a volume headwind, a margin opportunity, or a

credit-quality positive for the major banks?

2.