Our preferred major banks are ANZ and NAB, although we have taken a more conservative stance in the Income Portfolio with a position in CBA.
- We remain underweight the sector for now with a preference to buy weakness, not chase strength.
The banks collectively have enjoyed rising rates which have helped to improve margins at a time when bad debts have stayed incredibly low. The guidance this week from Credit Corp (CCP) which essentially buys bad debts from financial institutions shows a lack of available inventory, which is a positive sign. The banks did flag aggressive competition as a headwind, the much discussed ‘mortgage cliff’ creating a potential churn event for borrowers looking for a better deal, but as rates have risen, serviceability becomes a more pressing issue, and staying with as existing lender generally helps with that calculation. More recent data points show competition has eased.
- At current levels, we are neutral on the sector overall, only looking for opportunities into weakness.
- NAB is expected to yield 6.2% over the next 12 -months, & we may consider increasing our NAB position on dips back below $27.
MM remains a buyer of weakness in the banks
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