The Australian banks make up around a quarter of the ASX200 making it an extremely influential sector, a bit akin to the influence of tech stocks in the US. In recent months the local index has rallied nicely after surrendering some of its post COVID gains late in 2021. At this stage we still see another 6-8% upside for the sector but its 2015 all-time highs feels a step too far this year.
A rising interest rate environment can be beneficial to banks as it allows them to increase margins although because they “borrow short term money and lend long” customers should anticipate increased borrowing costs if central banks follow through with their anticipated hikes into 2022/23. However if we see an increase in bad debts, if say house prices were to fall, the goal posts move and banks will struggle however after the surge in prices through 2021 there’s lots of fat built into most buyers LVR at present.
