Australian Banks

Research evidence excerpt

Macquarie Equity Research

08 September 2026

Australian Banks

Banks

Australia

Bankonomics - Downturn entrenched

Carlos

Cacho

Key Points

Victor

German

• The macro backdrop for banks has continued to deteriorate since June.

We expect it to continue to weaken into 2027.

Jason

Shao, CFA

• With the risk of further rate hikes, we now expect home prices to fall

10% from the peak.

• We continue to see downside risk to earnings from increased

competition, slowing volumes, and higher provisions.

• Housing correction playing out faster than expected: Since the last

edition of Bankonomics, the housing downturn has accelerated faster

than expected, with price falls spreading beyond Sydney and Melbourne,

and auction clearance rates remaining <50%, despite a 30% drop in

volumes. Household sentiment towards housing has also continued to

fall, with the WMI house price expectations series falling >60% from the

Feb-26 high (Figure 3). This is likely to be exacerbated by further RBA

hikes, with the market now pricing an additional ~1.5 rate hikes. As such,

we have downgraded our view and now expect national home prices

to fall ~10%. Heading into spring, we will continue to closely track high

frequency indicators, including clearance rates, daily prices, and listings.

• Macro backdrop suggests further underperformance: The outlook has

continued to deteriorate since June; the housing market correction has

gathered pace, unemployment is gradually increasing, and confidence

remains weak. Indeed, our model is now around the weakest since

early-23. With another rate hike now likely in 2026, and house prices

at risk of correcting 10%, we expect the outlook to deteriorate into

2027, which will weigh on bank performance. Importantly, with low cost

deposits now largely hedged, we think the direct impact of further

hikes on banks has become negative, with further hikes weighing on

credit growth and credit quality.

• Credit quality back on watch? While credit quality generally remained

solid during recent results, there were some early signs of a shift, with

watch loans up and early stage mortgage arrears rising. We continue

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