Why are the CBA and WBC share prices stumbling today

Posted: 1 April 2022 3:49 pm

Shares in the major banks rose 6–13% over the last month, but are retreating today.

The heavyweight banking sector is dragging the overall ASX indices today. Each of the Big Four banks – Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) – have dropped more than 0.5% at the time of writing.

What is weighing down on bank stocks?

Sentiment in the ASX bank stocks has no doubt been affected by a sharp drop in financial stocks on the US market overnight, with the sector one of the worst performing during the session.

But investors are also worried about prospects for the major banks after local home prices data indicated the coming end of the bull run in the housing market.

Data from the CoreLogic's national Home Value Index on Friday showed prices have slipped across Sydney and Melbourne, although conditions were stronger in smaller markets like Brisbane, Adelaide, Perth and several regional areas.

Sydney's growth rate fell from a peak of 9.3% in the 3 months to May 2021, to just 0.3% in the first quarter of this year. Melbourne's housing market has seen the quarterly rate of growth slow from 5.8% in April last year to just 0.1% over the past 3 months. Prices actually fell in both cities in March.

"The sharpest slowdown has been in Sydney, where housing prices are the most unaffordable, advertised supply is trending higher and sales activity is down over the year," CoreLogic research director Tim Lawless said. He expects the annual growth to fall sharply in the coming months.

Earnings worries

That could spell trouble for the Big Four because the housing market is the key profit earner for the big banks.

Each of the major lenders were already increasingly having to battle for market share amid the gradually slowing growth in housing prices, mortgage processing bottlenecks and difficulty in retaining customers.

This comes at a time when global interest rates have already risen and the Reserve Bank of Australia is set to lift its own cash rate around the middle of 2022. This is negative for Australian banks, as it increases their cost of funds, but also turns off potential customers from taking new home loans.

The problem was underlined on Friday after both NAB and ANZ announced an increase in fixed home loan rates by up to 0.4 percentage points as they gear up for RBA's move to push the cash rate higher. This is the seventh time NAB has hiked fixed rates in the last 6 months and the sixth time for ANZ.

Investors are worried this will result in a dip to earnings and impact the share prices of the big banks, which have been strong performers over the last 12 months.

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