“While we are now experiencing a return to more normal interest rates than what has been observed over the past few years; increased rates will be impacting many household budgets,” Hyman said.
The signs new lending is off its highs come as financial markets expect the Reserve Bank of Australia to raise the cash rate from 1.35 per cent to 1.85 per cent this Tuesday, in an attempt to force down inflation.
For the big-four banks, rising interest rates tend to widen profit margins, but analysts also expect higher bad debts, alongside slower growth in the $2 trillion mortgage market.
Macquarie analyst Victor German is forecasting housing credit growth to fall sharply to 2.2 per cent a year by the middle of 2023, from annual growth of almost 8 per cent in June, citing New Zealand’s experience, where lending dropped in response to higher rates.
“If we are heading into an environment where credit growth is going to be slow for a long period of time, it does have a substantial impact on the earnings outlook and the valuation of banks,” said German, who has more bearish estimates on credit growth than many other analysts.
Morningstar analyst Nathan Zaia has forecast home loan growth to slow to 3 per cent to 4 per cent in 2023, because of falls in house prices and customers’ borrowing capacity.
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Zaia said net interest margins – the difference between funding costs and what the banks charge for loans – were more “material” for the major banks than credit growth.
Macquarie Group chief executive Shemara Wikramanayake acknowledged the likely slowdown in loan growth before the bank’s annual meeting on Thursday, saying: “In our banking and financial services business we’re seeing interest rates go up, possibly volume growth come off a bit in the market , although we continue to have good volume growth.”
Anthony Waldron, chief executive of REA Group-owned Mortgage Choice, said he thought the refinancing market would remain strong because many borrowers would face higher rates as rock-bottom fixed-rate loans expire. “People have been on a rate that, in some cases started, with a 1, and all of a sudden, they are going to be in the 3s,” Waldron said.