{"id":124865,"date":"2022-01-28T11:39:36","date_gmt":"2022-01-28T11:39:36","guid":{"rendered":"https:\/\/fin2me.com\/?p=124865"},"modified":"2022-01-28T11:39:36","modified_gmt":"2022-01-28T11:39:36","slug":"rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins\/","title":{"rendered":"Rate rises tipped to ease squeeze on bank profit margins"},"content":{"rendered":"

Banking giants are tipped to get some relief from the crunch on their profit margins if Reserve Bank governor Philip Lowe bows to market pressure and lifts interest rates from record lows later this year.<\/p>\n

As investors place growing bets that official rates will rise off from 0.1 per cent this year, fund managers and analysts say what the RBA decides to do with rates will be a key influence on bank profitability in 2022.<\/p>\n

<\/p>\n

Official interest rate rises would ease the pressure on bank profit margins, analysts say.<\/span>Credit:<\/span> <\/cite><\/p>\n

Any such rate hikes, which many economists expect in the second half of the year, would be likely to ease some of the pressure on banks\u2019 margins, which have been compressed as rates have fallen to virtually zero in recent years.<\/p>\n

In the shorter term, however, analysts warn that stiff mortgage competition will continue to erode the banks\u2019 margins, with retail banking giants the Commonwealth Bank and Westpac the most exposed to the trend.<\/p>\n

Net interest margins, which compare funding costs with what lenders charge for loans, are a key influence on bank profits. CBA and Westpac both suffered dramatic share price falls in late 2021 after revealing weak margins, and analysts say the issue will be crucial against a backdrop of possible rate rises.<\/p>\n

Morgan Stanley analysts said margins were \u201cthe main game\u201d for bank investors in 2022, and the outlook was improving, thanks to a flurry of fixed interest rate hikes in recent months and the possibility of higher variable rates.<\/p>\n

\u201cWe believe higher fixed-rate mortgage pricing and the likelihood of earlier and larger RBA rate rises have improved the banks\u2019 margin outlook,\u201d the analysts said.<\/p>\n

Citi analyst Brendan Sproules also said 2022 was shaping up as a year of rising interest rates – which is generally seen as good news for banks. He added, however, that banks faced challenges in trying to boost revenue, as lenders would continue to compete fiercely by offering competitive rates to new borrowers.<\/p>\n

\u201cIn our view, we see the largest 2022 earnings risk for the major banks being the RBA delaying cash rate rises until wage growth is more evident,\u201d Mr Sproules said.<\/p>\n

As rates have fallen in recent years, banks\u2019 margins have narrowed partly because lenders have struggled to offset falling lending rates by cutting deposit rates, as many deposits are already at zero. There has also been stiff competition for new customers.<\/p>\n

Dr Lowe has previously played down predictions rates will increase this year, but this week\u2019s strong inflation data has sparked renewed speculation the RBA will need to change tack. The central bank\u2019s board holds its first rate-setting meeting for 2022 next Tuesday.<\/p>\n

Westpac next week holds a quarterly trading update, while CBA reports its half-year profits the following week, followed by a NAB trading update. ANZ has not typically held quarterly trading updates.<\/p>\n

Principal at fund manager Alphinity, Andrew Martin, said a squeeze on margins would be a feature of the upcoming results, but the pressure could start to ease if the RBA raised rates later this year.<\/p>\n

\u201cI think you\u2019re going to get decent margin pressure for the banks, certainly in the first half of this year. Then you may get some relief in the second half of the year as and if interest rates get increased,\u201d Mr Martin said.<\/p>\n

The big four banks\u2019 combined profits rebounded by more than 50 per cent 2021 to about $27 billion, mainly due to sharp cuts in bad debt charges, with dividends also recovering from the pandemic hit.<\/p>\n

Despite market bets of rising rates, Barrenjoey analyst Jonathan Mott this week cut his forecast for Westpac\u2019s net interest margin, highlighting the bank\u2019s need to compete after its housing loan growth slowed recently.<\/p>\n

Jefferies analyst Brian Johnson highlighted the \u201cdownside\u201d risk to bank earnings, predicted continuing pressure on margins, and said fixed-income trading could also be weak, as experienced by US banks in recent results.<\/p>\n

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Banking giants are tipped to get some relief from the crunch on their profit margins if Reserve Bank governor Philip Lowe bows to market pressure […]<\/p>\n","protected":false},"author":3,"featured_media":124864,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\nRate rises tipped to ease squeeze on bank profit margins - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/markets\/rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Rate rises tipped to ease squeeze on bank profit margins - Fin2me\" \/>\n<meta property=\"og:description\" content=\"Banking giants are tipped to get some relief from the crunch on their profit margins if Reserve Bank governor Philip Lowe bows to market pressure [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/markets\/rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2022-01-28T11:39:36+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2022\/01\/Rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/markets\/rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins\/\",\"url\":\"https:\/\/fin2me.com\/markets\/rate-rises-tipped-to-ease-squeeze-on-bank-profit-margins\/\",\"name\":\"Rate rises tipped to ease squeeze on bank profit margins - 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