Why are the CBA and ANZ share prices feeling the pressure again?
Shares of the Big Four banks have tumbled 11-18% in the last month, continuing their fall today.
Bank shares are again among the top traded stocks on the ASX on Tuesday but investors seem nervous about the sector.
The 4 major banks, Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC), National Australia Bank (ASX: NAB), and Australia and New Zealand Banking Group (ASX: ANZ), were trading between 0.6% and 1.2% lower at the time of writing.
Why are investors jittery about the CBA and ANZ stock prices?
Investor sentiment in the top banks remains bearish ahead of the Reserve Bank board meeting later on Tuesday at which the central bank is widely expected to raise interest rates. But the extent of the hike is still being debated.
Investors were singed last month when the RBA stunned the market with a higher than expected 50 basis points lift in its benchmark rate as it sought to stamp down runaway inflation, which hit a 20-year peak in the first 3 months of this year.
Since then, the top banking shares have slid 11-18%.
Robust retail sales and strong job vacancies data last week has further strengthened the case for the central bank to move quickly away from emergency settings.
Those fears have again come to the surface ahead of this month's meeting, although recent statements by RBA Governor Philip Lowe indicate an up to 50 basis points rate hike is very much on the cards.
But investors have been spooked in recent weeks that aggressive rate increases by central banks around the world will drag down the major economies into a recession, at a time when the Russia Ukraine conflict and global supply chain disruptions are already weighing heavily on consumers and businesses.
Slowing growth
While the fear of a recession is quite low in the booming Australian economy, there will definitely be a major impact on the growth prospects and balance sheets of the major banks.
The banking sector had expected rates to rise gradually over the next year, giving them a solid margin buffer at a time of rising wage costs and increased spending on technology.
But the rapid rate hikes risk turning consumers cautious and prompting them to cut down on spending and borrowing. In the case of Australian banks, the biggest impact will be felt on their key home loans business, which accounts for the biggest contribution to their earnings.
Data last week showed home values across Australia fell for the second month in a row and the decline is expected to accelerate in coming months as rising interest rates take their toll. This will inevitably result in slowing growth for home loans.
Concerns have also focused on the risk of rising defaults, as higher interest payments squeeze borrowers at the same time that rising food, petrol and electricity prices hurt consumer wallets.
Meanwhile, rising global rates also mean Aussie banks have to pay more interest on their own wholesale borrowings from overseas, worsening the pressure on net interest margins (NIMs).
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