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Are Australia’s Big 4 banks in trouble?

Shareholders of Australia’s Big Four banks haven’t had the best year.

For Westpac Banking Corp’s (ASX: WBC) shareholders it’s been particularly grim, with the bank’s share price shedding almost 10% of its value in 12 months. As a result, Westpac recently lost its position as the ASX’s third biggest company by market capitalisation to CSL Limited (ASX: CSL).

Mortgage stress, falling house prices and rising global interest rates are a few factors that do not seem to sit well in combination.

However, the CEO of Commonwealth Bank of Australia (ASX: CBA), Matt Comyn, recently expressed defiant optimism to Fairfax Media Limited (ASX: FXY), stating that “long term we see great prospects in the growth of the Australian economy”.

With the stench of a series of scandals and scams still lingering around the CBA and other big banks, not to mention falling profits in the banking sector, perhaps Mr Comyn is wise to look to the future.

But how far ahead Mr Comyn is looking and what exactly he meant by “long term” are factors that remain unclear.

Although, if the timeframe is stretched long enough we will see great prospects for growth.

For now, however, others are not so enthusiastic about the CBA’s outlook with UBS, Goldman Sachs and Deutsche Bank remaining bearish on Australia’s biggest bank while the Reserve Bank has opted to leave interests rates on hold at 1.5%.

The CBA’s share price has lost almost 5% of its value over the past year but the company remains Australia’s biggest by market value, ahead of BHP Billiton Ltd (ASX: BHP).

The next biggest listed bank, Australia and New Zealand Banking Group (ASX: ANZ), has seen its share price sink by about 2% over the past year as the National Australia Bank Ltd (ASX: NAB) dropped almost 7% and the Westpac Banking Corp (ASX: WBC) share price lost more than 9%.

Westpac is set to raise interest rates by 0.14% later this month which would see its owner-occupier variable mortgage rate rise to 5.38% as the bank blames pressure from its lenders for the increase.

It’s likely the other big banks will also be feeling that pressure and follow Westpac’s lead rather than that of the Reserve Bank.

In turn, that pressure will hurt consumers already feeling the pinch of mortgage stress as house prices continue to fall. That does not sound like a good recipe.

Some will see opportunity in these beaten down bank shares.

But I’m not so optimistic about the long-term potential of the ASX’s big banks.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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