25May2021

EquityResearch

AsiaPacific|Australia

AustralianBanks

Beyondthepandemic—redux

Banks|SectorReview

Oneyearlater.12monthsagowepublishedourinitialthoughtsontheAustralianBanksbeyondthepandemicbylookingatprimaryandsecondarythemesthatweviewedwouldimpactthesector.Weconcludedthatapost-pandemicROEforthesectorcouldbeintherangeof7-13%.Anecessarilywiderangeatthetime.

ResearchAnalysts

JarrodMartin

61282054334jarrod.martin@

Figure1:Updatedrangeof9-13%ROEpostthepandemicunderourlowandhighscenarios

16%

14%

14%

12%

13%

12%

12%12%

12%

11%

11%

10%

10%

10%

10%

9%

8%

6%

4%

2%

0%

ANZ CBA NAB WBC

LowFY23FROEHigh

Source:Companydata,CreditSuisseestimates

Increasinglypositive.Inthisreport,werevisitthosethemestoreflectonwhethertheywouldhavealargerorsmallerimpactaswellasanynewthemesthatwethinkareemerging.Ingeneral,wefindthatthemajorityofpositiveswehighlightedforbankswereasstrongifnotstrongerthanoriginallyconsideredandthenegativeswerenotaslarge(RWAinflationandcapitalbeingonesuchexample).Weputthisdowntonotjustthesubstantialgovernmentandregulatorysupport,butacknowledgementthatmanagementtakeactionanddonotsitontheirhands.

ROEsattheupperendoftherange.OurreviewleadsustoconsiderthatthesectorROEismorelikelytobetowardstheupperendoftherangeinitiallyestimatedpostpandemic,say9-13%andinfactmayprogressbeyondthetop-endinsomescenarios.WithourforecastFY23FROEsof10-13%acrossthemajorbanksanddependingonthecostofequity,thisresultsinvaluationsthatareatapremiumtobook.Webelievethistobesupportiveofourviewthatbanksharescontinuetogrindhigher.OurorderofpreferenceisWBC(OUTPERFORM),NAB(OUTPERFORM),ANZ(NEUTRAL)andCBA(NEUTRAL).

AlexanderDemetriou

61282054403

alexander.demetriou@

DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

25May2021

Focuscharts(proofpoints)

Figure2:CBAseeinggrowthindigitalwalletsandtransactionFigure3:Majorbankfundingcostsvolumes

Source:Companydata

Figure4:TFFusage

Source:APRA,RBA

Figure6:CPreleasesin1H21

$800

$700

678

640

$600

$500

$400

313

$300

$200

$100

$0

ANZ NAB WBC

Source:Companydata,CreditSuisseestimates

AustralianBanks

Source:RBA

Figure5:WBC’sassumptionsusedintheirECLmodel–2H20vs1H21

Source:Companydata,CreditSuisseestimates

Figure7:Pro-formaCET1ratiosandsurpluscapital

13.0%

9,826

7,755

7,892

7,809

12.5%

12.0%

11.5%

11.0%

10.5%

10.0%

9.5%

9.0%

8.5%

ANZ

CBA

NAB

WBC

UnquestionablyStrong

SurplusCapital

Source:Companydata,CreditSuisseestimates

2

25May2021

Executivesummary

Ayearonfromouroriginal‘Beyondthepandemic’notewenowupdateourviewtoseewhathasbeentheimpactfromthepandemic.Comparedtoouroriginalexpectationssomethemeshaveplayedoutbetterthanexpected(uptakeofdigital,lowerbaddebtsandRWAinflation)whileothershavenotmanifestedthemselves(opportunitytore-pricecredit).Asaresultofthis,wehavebeenabletonarrowourrangeofexpectedROEspostthepandemic.

Positivesforthesectorgreaterthanouroriginalexpectations

Primaryandsecondarythemes

Thisreportoutlinespost-pandemicthemesthatmayimpactthesector.Followingouroriginalreportwehaveupdatedourviewsontheimpactofthesethemes.Wehaveseenahigherbenefitfromtheaccelerateduptakeofdigitalbanking,withbanksalreadyseeingbenefits.Anotherthemewehighlightedwastheincreasingtrendofmoreemployeesworkingfromhome.Bankshavenowstartedtoreducetheirheadofficespaceresultinginloweroccupancycostsinthefuture.Theimpactoflowratescontinuestoimpactmargins,howeverthebenefitsoflowerwholesalefundingcosts(andTFF)andbanksoptimisingtheirdepositbasehasmitigatedthissomewhat.Wehavenotseentheflighttoqualityremainasstrongasweinitiallythoughtaswellasbankshavinganopportunitytorepricecredit.

Primaryandsecondarypost-pandemicthemesimpactingthesector–somehaveplayedoutbetterthanexpectedwhilesomehavenot

WhatcouldtheROEslooklikebeyondthepandemic?

WeestimateapotentialROErangeforthesectorpost-pandemicof9-13%.Wehavebeenabletonarrowthisrange(originally7-13%)aswemovefurtherthroughthepandemicandastheeconomyrecovers.

Thelowmarkerseesanenvironmentoflowercreditgrowthcombinedwithexpensesremainingflatandgreatercapitalintensity.Thehighmarkerbenefitsfromastructuralchangeinthecostbase,creditgrowthinlinewithlong-termaveragesandnear-termcompetitiveadvantages.

OurforecastFY23EROEsitsbetweenthelowandhighmarkersandgenerallyclosertothehighmarker.Weputthisdowntoourincorporationofastructuralreductionincostsandbaddebtsremainingsubduedthroughtheforecastperiod.

Conclusion

OurreviewleadsustoconsiderthatthesectorROEismorelikelytobetowardstheupperendoftherangeinitiallyestimatedpostpandemic,say9-13%andinfactmayprogressbeyondthetop-endinsomescenarios.WithourforecastFY23FROEsof10-13%acrossthemajorbanksanddependingonthecostofequitythisresultsinvaluationsthatareatapremiumtobook.Webelievethistobesupportiveofourviewthatbanksharescontinuetogrindhigher.OurorderofpreferenceisWBC(OUTPERFORM),NAB(OUTPERFORM),ANZ(NEUTRAL)andCBA(NEUTRAL).

AustralianBanks

WeestimateapotentialROErangeforthesectorpost-pandemicof9-13%

3

25May2021

TableofContents

Executivesummary 3

Primaryandsecondarythemes 3

Conclusion 3

Primary/permanentthemes 6

Uptakeofdigital 6

Workingremotely 6

Secondary/transitionthemes 7

Lowratesforlonger 7

Assetpricevolatilityhasreduced–economistshaveincreasedassumptionsforhouseprice

growth 7

Economistshavebeenrevisingtheirhousepriceestimates 8

Flighttoquality 9

Temporaryrepricingofcredit,socialdistancingandreducedtravel 9

ImpactofthepandemiconbankP&L 11

Positivesforbanks 12

Acatalystforcostreduction 12

Smallerbranchnetworksandsmallercorporateofficespace 12

Cheaperfundingcosts–wholesaleanddeposits 14

Improvingassetgrowth 15

Lowerlendingrates 15

Benefittinghousingcreditgrowth 16

Negativesforbanks 18

Marginpressurefromlow-rateenvironment 18

Mitigatingfactors–changinginvestmenttenor 19

DeferralshavedecreasedsubstantiallyandunemploymentstrongpostJobKeeperrolling

off 21

Capitalpositions 22

RWAinflationvs.RWAdeflation 22

APRAnowseesthebanksas‘a(chǎn)dequatelycapitalised’ 22

WhatthesethemeslooklikefortheP&L 24

WhatcouldROEslooklikeinthefuture? 25

Wheredothesescenariossitversusourforecasts? 26

Ourviewonthesector 26

Valuation–BVandROE 27

AustralianBanks 4

25May2021

AustralianBanks

5

25May2021

Primary/permanentthemes

Uptakeofdigital

“Permanentchange,inmymind,hasjustbeenmadein10weeks.Itwouldhavetakenusanotherfiveyears”RossMcEwanNABCEO

“ThroughoutCOVIDaround25%ofourretailcustomersinteractedwithANZviaadigitalchannel,comparedwith5%preCOVID.Wewillseewhatthefuturebringsbutearlyindicationstellusthatshifttodigitalwillendure.”ShayneElliottANZCEO

“Ouroperationalmetricsimproved,helpedbybigshiftsincustomerbehaviorwithlesscash,lessbranchandmoredigitalactivity.”ShayneElliottANZCEO

Wehaveseentheuptakeofdigitalbankingcontinuethroughoutthepandemic.BankshaveseenthebenefitofcustomersmovingtheirbankingactivitythroughdigitalchannelsratherthanbrancheswithANZflaggingcostbenefitsoftheshift.NABCEORossMcEwanstatedtheuptakeofdigitalbankingthatoccurredoverthepandemicwouldhavetakenthemfiveyearstoachieve.

Figure8:CBAseeinggrowthindigitalwalletsandtransactionvolumes

Source:Companydata

Workingremotely

Weoriginallysawthisthemebenefittingbanksthroughapotentialreductionincoststhroughlowerheadofficecosts.Asthepandemichascontinuedtherehasbeenachangeinpreferencebyemployeestowanttoworkfromhomemoreregularlyorpermanently.Thishasresultedintheconceptofthecorporateofficespacechangingasaresultofthepandemic.ShayneElliottsaidthathethinks“theconceptofaheadofficeisgoingtochangedirectlyasaresultofthis.Itwillbecomemoreofatouchdownpointforpeople.WehadalreadymovedtoflexibleworkingpriortoCOVID-19:moreandmorepeopleworkfromhome,parttime,jobsharing,allofthatstuff.”

AnotherexampleisNAB,whichhassetaside$138mntomodifyitsMelbourneofficesasmorestaffchoosetoworkfromhomepermanently.In2H20,NABtooka$94mnpost-taxchargerelatedtoimpairmentofitsproperty-relatedassets.ThischargewasrelatedtoNAB’splanstoconsolidateitsofficeswithNABexpectingmoreemployeestoadoptaflexibleapproachtoworkingoverthelongerterm.Itstatedthatthiswillresultinongoingcostsavingsof<$20mneachyearreflecting~7-yearleasetail.

AustralianBanks

6

25May2021

Secondary/transitionthemes

Lowratesforlonger

“TheBoardwillnotincreasethecashrateuntilactualinflationissustainablywithinthe2to3percenttargetrange.Forthistooccur,wagesgrowthwouldneedtobemateriallyhigherthanitiscurrently.Thiswouldrequiresignificantgainsinemploymentandareturntoatightlabourmarket.TheBoardviewedtheseconditionsasunlikelyuntil2024attheearliest.”StatementbyPhilipLowe,Governor:MonetaryPolicyDecisionMay2021

TheRBAhasnowcutthecashrateto0.10%andstateditwillnotincreasetherateuntilinflationisinthe2-3%range.Itisnotexpectingtoincreasethecashrateforatleastthreeyears.ThesecommentsbytheRBAarepointingtoascenariooflowerratesforlongerthanweoriginallyanticipated.TheRBAisreducingitstargetonthe3-yeargovernmentbondto0.10%andalsoplanningtopurchaseanadditional$100bnofgovernmentbonds(oncecompletionofthefirstbondpurchaseof$100bniscompleted).

Inadditiontothereductionsinthecashrate,theRBAhasalsocreatedtheTermFundingFacility(TFF)whichgivesbanksaccesstocheapfunding(now0.10%interestratefrompreviously0.25%)foranallowanceofapproximately$200bn.Thishasbeenextended(June2021deadlinetodrawdown)tokeepfundingcostslowforbanks.Asaresultofthisfacility,banksarenowofferingverycompetitivefixedratehomeloansof~2%foruptothreeyears.

Figure9:TFFallowances Figure10:TFFusage

Sourceforbothcharts:APRA,RBA

Assetpricevolatilityhasreduced–economistshaveincreasedassumptionsforhousepricegrowth

Atthebeginningofthepandemic,thehighlevelsofuncertaintyledtolargespikesinvolatility.Wepreviouslyexplainedthathigherassetvolatilityleadstoriskaversion.Eventhoughuncertaintystillremains,weareinabetterpositiontounderstandtheimpactscomparedtothebeginningofthepandemic.Additionally,thenewsofeffectivevaccinesandtrialshasimprovedthepotentialimpactsofthepandemic.Thechartsbelowshowthatvolatilityremainselevatedbutnotattheextremelevelsweexperiencedinearly2020.Furthermore,theASX200hasregainedmostofthevalueitlostearlierin2020andhasfullyrecovered.

AustralianBanks

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25May2021

Figure11:VIXvolatilityindex

90

80

70

(bps)

60

50

Spread

40

30

20

10

0

Dec-20

Jun-20

Dec-19

Jun-19

Dec-18

Jun-18

Dec-17

Jun-17

Dec-16

Jun-16

Dec-15

Jun-15

Dec-14

Jun-14

Dec-13

Jun-13

Dec-12

Jun-12

Dec-11

Jun-11

Dec-10

Jun-10

Dec-09

Jun-09

Dec-08

Jun-08

Dec-07

Jun-07

Figure12:ASX200monthlypricechart

7,500

7,000

6,500

6,000

5,500

5,000

4,500

4,000

3,500

3,000

Jan-21

Jul-20

Jan-20

Jul-19

Jan-19

Jul-18

Jan-18

Jul-17

Jan-17

Jul-16

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Source:TheBLOOMBERGPROFESSIONALTMservice Source:TheBLOOMBERGPROFESSIONALTMservice

Economistshavebeenrevisingtheirhousepriceestimates

Themarketandeconomistshavenowupgradedtheirforecastsandaremuchmoreoptimisticcomparedtotheirearlierforecaststhisyear.AnexampleofthisisthechangeinhousepricesthatthebankshavebeenusingintheirExpectedCreditLoss(ECL)scenarios;theseforecastsareprovidedbytheirhouseeconomists.AttheirFY20resultsANZandNABwerebothforecastinglargedeclines(10%and12%,respectively).

ANZadmittedthatthisestimatewastoopessimisticandlowrateshavetrumpedfactorslikeelevatedunemploymentandlowpopulationgrowth.Ithasnowreversedtheseassumptionsandisexpectingpricegainsofaround17%acrossthecapitalcities."Thestrengthinsentimentisputtingupwardpressureonprices,withlowstocklevelsaddingtothefearofmissingoutsentimentemerginginthemarketgainsofaround17%acrossthecapitalcities(upfrom9%previously)in2021,"FelicityEmmetsaid(ANZsenioreconomist).

NABhasseenthehousingmarketholdupsubstantiallybetterthanitinitiallyexpected,withthelowerinterestratesforanextendedperiodbeingakeysupporttothehousingmarketoverthenextcoupleofyears.AsaresultofthisNABnowexpectedrisesofaround10%inCY21.

“NABiscurrentlyforecastinghousepricegrowthofaround10%forAustralia’scapitalsin2021,withapartmentpricegrowthlikelytobeabitmoresubdued,particularlyinMelbourneandSydney,"AndyKerrsaid(NABexecutiveHomeOwnership).

WBChassimilarlyseenaturnaroundinitsforecastsforhousepricegrowth.WBC’seconomistBillEvanshaslifteddwellingpriceforecastsfor2021and2022tobeatotalof20%.Itexpectsmoreofthistocomein2021witha15%gainin2021slowingto5%in2022.

AustralianBanks

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25May2021

Figure13:ChangeinCY21housepricesforecastfromthebanks’economistteams

20%

17%

15%

15%

10%

10%

10%

5%

0%

-0.4%

-5%

-10%

-10%

-15%

-12%

-12%

ANZ

CBA

NAB

WBC

1H20FY20

Current

Source:Companydata

Flighttoquality

Thestartofthepandemicsawa‘flighttoquality’tothemajorbanks.LookingattheAFGIndexwecanseethatoverthistimethemajorbanksgainedmarketshareovertheirnon-majorpeers.However,thisimpacthasnormalisedastheenvironmenthasheldupbetterthanexpected.

Figure14:Shareofmajorsbanksvs.non-majorsinAFGIndex

100%

90%

80%

70%

60%

50%

40%

30%

67%

54%

53%

60%

59%

59%

57%

20%

10%

0%

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

3QFY21

Majors

Non-Majors

Source:AFG,CreditSuisseestimates

Temporaryrepricingofcredit,socialdistancingandreducedtravel

Animprovementineconomicconditionshasmeantthatbusinesseshavenotrequiredtheadditionalfundsandaccesstofacilitiesthatwouldhaveallowedbankstore-pricetheircreditorfacilities.Followingthelargedrawdownsatthestartofthepandemicfrombusinessestoshoreuptheirliquiditypositionswehaveseenthemajorityofthesenowrepaid.Inthecurrentenvironment,eventhoughlendingratesarelow,businessesarereluctanttotakeondebtduetotheuncertaintyaroundtheeconomicoutlookandinsteadhavesoughttoshoreuptheirliquiditypositions.

AustralianBanks

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25May2021

Astheeconomyhasstartedtore-open,consumershavenowadjustedtothenewnormofsocialdistancingandarenowvisitingrestaurantsandcafesonceagain.Vaccinesarenowintheprocessofbeingrolledoutglobally.

Figure15:ANZFY09NIMwaterfall Figure16:ANZ1H21NIMwaterfall

Source:Companydata Source:Companydata

AustralianBanks

10

25May2021

ImpactofthepandemiconbankP&L

ThevariousthemesoutlinedaboveresultinbothpositiveandnegativeimpactsontheP&Lforbanks.Theeconomyandfinancialenvironmenthasheldupbetterthanweoriginallythought.ThishasforcedustoreassesstheimpactthesethemesarehavingontheP&L.Belowwelistthethemeswebelievewillcontinuetohaveanimpactonabank’sP&Landreturnsforthesector:

Figure17:Drivingthemes

Number

Theme

1)

Uptakeofdigital

2)

Workingremotely

3)

Lowratesforlonger

4)

Lowerassetpricevolatility

Source:Companydata,CreditSuisseestimates

Thetablebelowshowsthethemesoutlinedaboveandwhetherornoteachthemeismorenegativeorpositiveversusouroriginalview.

Figure18:Themesversusourinitialview

Source:Companydata,CreditSuisseestimates

AustralianBanks

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25May2021

Positivesforbanks

Acatalystforcostreduction

Drivingthemes:(1)and(2)

Smallerbranchnetworksandsmallercorporateofficespace

Overtimewehaveseenareductioninthebranchnetworksofallbanks.Theyarealargeexpenseforthebanksandbecauseofthisbankshavebeenfocusedonimprovingtheirdigitalofferingsovertimetoslowlytransitioncustomersontocheaperservicingmethods.Thepandemichasacceleratedthelikelihoodofadoptionofthesenewmethodsasbranchclosureshaveforcedcustomersonline.Inthepastbankshavebeenunderscrutinyforclosingbranchespriortoretrainingcustomersandprovidingotherservicemethods.Thepandemichasallowedthemtoacceleratethistransition.ANZisalreadystartingtoseethebenefitsofthisbycallingoutanimprovementinitsoperationalmetricsduetolesscashandbranchactivityandmoredigitalactivity.

Inadditiontosavingcoststhroughclosingbranches,bankshavealsobeenengagingmoreviadigitalmethodsduringthepandemic(e.g.textmessagingandmobilenotifications).Thisnewandincreasedwayofengagingandcommunicatingtocustomersnowopensthebankstonewdistributionchannelsandservicingmethods.ForexampleNABnowoffers65%ofsimpleconsumerproductsalesviadigitalchannels.Since2017,ithasalsobeenabletoreduceover-the-countertransactionsby35%reducingthecosttoservecustomers.

WBChasalsoseenacontinuedmigrationtodigitalchannels;thisputscustomersincontrolandreducesthecosttoserve.WBCsawalargeincreaseinsalesviadigitalchannelsaswellasreductioninbranchtransactionsover2H20.Itnowhas5.09mndigitallyactivecustomers,up2%onFY19.

Figure19:NumberofMajorBankbranchesovertime

Figure20:NABhasbeenincreasingsalesthroughdigital

channels

4,000

3,800

3,600

3,400

3,200

3,000

2,800

2,600

2,400

2,200

2,000

2011

2010

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source:APRA

Source:Companydata

AustralianBanks

12

25May2021

Figure21:WBCbranchover-the-countertransactions Figure22:WBCsalesviadigitalchannelsandtransactions

Source:Companydata Source:Companydata

Bankshavebeenmovingdownthepathofprovidingmoreservicesandofferingsviadigitalchannelsduetothelowercosttoservecustomers.Thepandemichasacceleratedthedigitaluptakebycustomersandalsothewaybanksarenowengagingwithcustomers.Theacceleratedtransitionisnowchangingthewaybanksviewtheirdigitaldistributionmethodsandarenowrealisingtheycanservecustomerscheaperandmoreefficiently.Themajorbanksarealreadystartingtothinkabouttheuseandsizeoftheirbranchnetworks;areductionwouldallowthemtostructurallyreducetheircostbase.

Inadditiontosmallerbranchnetworks,bankscouldalsobenefitfromsmallercorporateofficespaceifworkingfromhomebecomesthenewnorm.TheimpairmentandinvestmentbyNABinitsheadofficeisrecognitionofthisnewtrendthatcorporateofficeswillbedifferentinthefuture.AnotherexampleisWBCconsideringsheddinguptosevenfloorsatitsBarangarooofficesasitlookstosub-leasesomeofitsspacetoanothertenant.Thesearetwoexamplesofbanksrealisingthattheirheadofficeswillbedifferentinthefuture.Thepandemichasincreasedthepopularityofworkingfromhomeandmoreandmoreemployeesarechoosingtospendlesstimeintheoffice.Asaresultbanksarelookingtoreducetheircorporateofficecostsandreducetheircostbase.

Thesmallerbranchnetworksandcorporateofficespaceprovideopportunitiesforbankstoreducetheircostbasefurther,withoccupancyexpensesmakingup9%oftheirtotalexpensebaseinFY20andstaffcostscomprisingnearly50%oftheircostbase.Asbanksincreaseandimprovetheirdigitalofferings,thisgivesthemanopportunitytoreducetheirheadcountandemployeeexpense.

Figure23:MajorbanksFY20occupancyandstaffcosts

6,000

5,000

4,000

3,000

2,000

1,000

-

ANZ

CBA

NAB

WBC

OccupancyCosts

StaffCosts

%ofTotalexpenses(RHS)

70%

60%

50%

40%

30%

20%

10%

0%

Source:Companydata,CreditSuisseestimates

AustralianBanks

13

25May2021

WBC,atitsrecent1H21resultoutlineditscurrentthree-yearcostplan.Oneofthestrategiesinvolveheadofficeandorganisationalsimplification.Thisincludesrationalisingitscorporatefootprintandcorporatespacebymorethan20%.Thisfurtherillustratedthepositivecatalystthepandemichasprovidedbanksforcostreduction.

Figure24:Pathwayto$8bnincludesheadofficesimplification…

Figure25:…withareductionincorporateofficespaceakeymetricoftheirplan

Sourceforbothcharts:Companydata

Cheaperfundingcosts–wholesaleanddeposits

Drivingtheme:(3)

Thedownturnintheeconomyandsuccessivecutstothecashratehasprovidedanopportunityforbankstoaccesscheaperfundingsources.Thecashrateisathistoricallowsof0.10%andsotooistheBBSWratenowat~0.01%.Themajorityofbanks’wholesalefundingcostislinkedtotheBBSWrate.ThelowrateenvironmentisputtingpressureonbankNIMs,howeveronepositivetheysawoverFY20andmorerecentlyin1H21ischeaperwholesalefundingcostsasaresultoflowerBBSW.Aswementionedabove,banksalsohaveaccesstotheTFF,wherewesawbanksdrawdownalloftheirinitialallowance.

Figure26:Bankfundingcomposition Figure27:Majorbankfundingcosts

Sourceforbothcharts:RBA,APRA

Inadditiontocheaperwholesalefundingcosts,banksarealsoseeingbenefitsfromdeposits.Thisincludesbothalargereductionintermdepositratesaswellasashiftingmixintheirdepositmixfrommoreexpensivetermdeposittocheaperat-calldeposits.In1H21,ANZand

AustralianBanks

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25May2021

NABcalledouta+4bpbenefitontheirNIMduetocheaperwholesaleanddepositcosts,withWBCseeingamuchlargerbenefitof+8bp.

Figure28:Majorbankdepositsbyinterestrate Figure29:Banks’depositrates

Sourceforbothcharts:RBA,APRA

Figure30:WBC'slowerrelianceonTDsoverFY20

WBCcustomerdepositmix

100%

90%

80%

70%

60%

50%

40%

30%

20%

40%

34%

29%

26%

10%

0%

FY19

1H20

FY20

1H21

TermDeposits

SavingsTransaction

Figure31:NABdepositmixovertime

Source:Companydata Source:Companydata

Improvingassetgrowth

Drivingthemes:(3)and(4)

Lowerlendingrates

Thelowrateenvironmenthasledtolargereductionsofhousingandbusinesslendingrates.TheRBA’smonetarypolicyhasbeenaimedatreducinglendingrates,thusboostingavailablecashflowsforconsumers.Thelargedeclineinfixedratehomeloansandtheprospectoflowerratesforyearstocomehelpeddriveincreasedactivityinthehousingmarket.Thestrengthandgrowthinthehousingmarkethasbeendrivenbyowner-occupierstakingadvantageoftheattractivelowratesonoffer.Furthermore,governmentstimulusmeasures,suchastheFirstHomeOwnersGrant,haveseenalargeincreaseinfirsthomebuyersinthepropertymarkets.Anothertailwindforthebanksandassetgrowthisthegovernment’sannouncementtowindbackandremovetheresponsiblelendingobligations.Bankswerebeingoverlypunitivetosomeborrowersaroundexpenseverification,whichrestrictedtheamountofloanstheywerewriting.

AustralianBanks

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25May2021

TheAustralianBankingAssociationsaystheremovalofbarrierstoaccessingcredit“striketherightbalancebetweenmaintainingstrongconsumerprotectionwhileprovidingcredittotheeconomyatacriticaltime”.Thesetwofactorsshouldincreaseassetgrowthoverthecomingyears.

Figure32:Fixedhousingrates Figure33:Variablehousinginterestrates

Sourceforbothcharts:APRA,RBA

Benefittinghousingcreditgrowth

Theimpactoflowratesandgovernmentstimulusmeasureshasboostedthedemandforhousingcreditandithasrecoveredsignificantlysincethebeginningofthepandemic.Forcontext,every1%ofassetgrowthequatestoapproximately1%ofearningsgrowth.ThegovernmentandRBA’sresponsetothepandemichasresultedinmuchbettereconomicconditionsthanoriginallyexpected.TherevisionsinhousepriceexpectationsfromalargedeclinetonowlargeincreasesinCY21demonstratestheconfidenceeconomistsarehavingintheeconomy.WBCisforecasting6.5%housingcreditgrowthfortheendof2021.

Figure34:Monthlyloancommitments(A$mn)

2.500

2.000

1.500

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0.500

0.000

Jan-05Jun-06Nov-07Apr-09Sep-10Feb-12Jul-13Dec-14May-16Oct-17Mar-19Aug-20

Owner-occupier

Investor

Figure35:Housingcreditgrowth(six-monthannualised)

20%

15%

10%

5%

0%

-5%

Jan-05Aug-05Mar-06Oct-06May-07Dec-07Jul-08Feb-09Sep-09Apr-10

Nov-10Jun-11Jan-12Aug-12Mar-13Oct-13May-14

Dec-14Jul-15Feb-16Sep-16Apr-17Nov-17Jun-18Jan-19Aug-19Mar-20Oct-20

Housing

Owner-occupier

Investor

Sourcefor