A Tough Day

Research evidence excerpt

A Tough Day

Idea

June 28, 2026 08:19 PM GMT

Morgan Stanley Australia Limited+MAustralia Banks | Asia Pacific Richard E Wiles

Equity Analyst

A Tough Day Richard.Wiles@morganstanley.comSally Hong, CFA +61 2 9770-1537

Sally.Hong@morganstanley.com +61 2 9770-1698

We believe there is downside risk to the major banks' FY27

earnings from a slowing mortgage market, rising competition,

and weaker credit quality. We have a Cautious industry view.

Key Takeaways Australia Banks

On Thursday, JDO's earnings downgrades raised concerns about SME credit Asia Pacific

Industry View Cautious

quality, while changes to property-related taxes were passed in parliament.

Related Research

Major banks' credit quality is still sound, but we expect underlying loss rates to

For more detail on credit quality and loan

increase in FY27. Risks to credit quality are rising.

losses, see The Game Has Changed (21 May

There have been meaningful changes in housing market sentiment and borrower 2026).

intentions. Conversion rates on mortgage applications are likely to fall. For more detail on our housing loan growth

forecasts, see Air Pocket (4 Jun 2026). Long periods of stable competition are unusual. We expect competition to

For more detail on our margin forecasts, see increase and margins to decline in 1H27.

Margins and Multiples (16 Jun 2026).

Our view on credit quality: JDO stated that its new problem loans aren't "a

symptom of anything more systemic” and recent feedback from the major banks is

that credit quality trends haven't really changed. We think underlying loss rates will

remain low in the June quarter but rise by year-end. What's more, the majors' share

price reaction to JDO's news highlights the risk of a material de-rating if credit

quality is worse than expected.