Chart of the Week: The warning signs for Aussie banks
Banks enter a lower-growth era.
This week’s insights come directly from our equity research team in the Australian Market Outlook Q4 2026.
Entering a new phase of lower growth
Housing credit growth slowed to 0.5% month-on-month in July from a peak of 0.7% in December as the effects of higher interest rates and changes to investor tax settings dampened demand.
Major banks saw an average decline in loan applications of around 15% since May, suggesting a further credit growth slowdown ahead. With banks competing for a smaller pool of new loans, margins are likely to come under pressure.
We expect limited downside, though, as slower loan growth should reduce funding requirements and lessen competition for deposits. Bad debts are normalising, not spiking, and we do not expect softer housing markets to materially increase credit losses. Even so, we believe major bank valuations are elevated.
We think curbing investor demand will bring credit growth to a crawl in fiscal 2027. Our forecast of 2%-3% growth assumes investor lending falls around 30%, with owner-occupier lending supported by population growth and no housing oversupply.
Australian major bank share prices were mixed in the quarter. Commonwealth Bank (ASX.CBA) derated while ANZ (ASX.ANZ) rallied, cutting Commonwealth’s relative premium, which we still view as unjustified.
Macro conditions weaken
Residential property is weakening too, as higher rates and tax changes bite. National home values have fallen for six straight months and sit about 5% below their March peak. This doesn’t guarantee weaker bank share prices: in four of the five housing corrections of at least 5% since 1980, equities were higher by the time house prices bottomed out.
However, this is a risk for banks, which make up almost 25% of the ASX benchmark index and lend roughly two-thirds of their books against homes. Rising unemployment, now 4.6%, is the main way a housing slowdown turns into bad debts.
Bank valuations leave little margin of safety for any of this: all four majors are rated 1 or 2 stars, at premiums of at least 17% to our fair value estimates.
