June was a terrible month for ASX 200 bank shares. Here’s why

June was a rough month for ASX 200 bank stocks. Here’s why.

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Key points

  • ASX 200 bank shares suffered in June, with most of the market's biggest banks falling between 11% and 18%
  • Their suffering came amid high inflation and rising interest rates
  • Such happenings might spell bad news for big banks' bottom lines

June turned out to be a month to forget for S&P/ASX 200 Index (ASX: XJO) bank shares. And some of the market’s biggest names were the hardest hit.

Here’s how some of the major ASX 200 bank shares performed last month:

  • Commonwealth Bank of Australia Ltd (ASX: CBA) – fell 13.4%
  • Westpac Banking Corp (ASX: WBC) – fell 18.3%
  • National Australia Bank Ltd (ASX: NAB) – fell 12.4%
  • Australia New Zealand Banking Group Ltd (ASX: ANZ) – fell 12%
  • Macquarie Group Ltd (ASX: MQG) – fell 11.5%
  • Bank of Queensland Limited (ASX: BOQ) – fell 11.2%
  • Bendigo and Adelaide Bank Ltd (ASX: BEN) – fell 12.9%

For context, the ASX 200 slipped 8.9% over the course of June. Meanwhile, the S&P/ASX 200 Financials Index (ASX: XFJ) slumped 11.8%.

Did interest rates weigh on ASX 200 bank shares?

Australia’s biggest banks were thrust into the spotlight in early June when the Reserve Bank of Australia hiked the benchmark interest rate for a second consecutive month. The rate was lifted 0.5% in June to 0.85% in an effort to tackle inflation.

On top of that, RBA Governor Philip Lowe noted further rate hikes are likely over coming months.

Readers might be wondering how news of a rate rise has weighed on ASX 200 bank shares, given it’s normally good news for the sector.

Indeed, rate hikes allow banks to increase net interest margins (NIM), thereby potentially boosting their profitability.

However, higher rates and inflation also increase the risk of mortgage foreclosures – particularly given 23.1% of new residential mortgage loans funded during the March quarter had a debt-to-income ratio of at least six times.

Increasing rates could also see house prices fall.

Both happenings would spell bad news for banks’ loan books.

In other banking news from last month, neobank Volt buckled at the knees last week. It’s leaving the Australian market, citing funding issues as the cause of its downfall.

What did ASX banking giants get up to last month?

There was plenty of news out of ASX 200 banks last month as well.

Both NAB and Macquarie underwent capital raises in June.

NAB announced a $1 billion capital notes offer on 6 June. Macquarie announced its own capital notes offering – worth $400 million – on 28 June.

ASX 200 insurance and banking giant Suncorp Group Ltd (ASX: SUN) was also in the spotlight late last month amid rumours it’s looking to spin out its banking arm. The company responded to such speculation, saying:

Suncorp, from time to time, reviews its strategic alternatives in relation to all of its businesses and is currently doing so in respect of its banking operations.

Suncorp was also the best performing ASX 200 bank share in June, falling just 3.2%.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. 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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