What’s going on with ASX 200 bank shares on Tuesday?

The RBA’s latest rate hike seems to have boosted most ASX 200 bank stocks.

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Key points

  • ASX 200 banks are recovering from a poor start to the day following the RBA's latest rate hike
  • The central bank lifted the cash rate 0.5% to 1.35% this month, marking the third consecutive increase in as many months
  • Rising rates have both positive and negative implications for banks

A rough day on the market was turned around this afternoon as many S&P/ASX 200 Index (ASX: XJO) bank shares bounced into the green. Their U-turn came as the Reserve Bank of Australia (RBA) hiked interest rates for a third consecutive month.

Here’s how the ASX 200’s ‘big four’ banks are performing at the time of writing:

  • Commonwealth Bank of Australia Ltd (ASX: CBA) – up 0.42%
  • Westpac Banking Corp (ASX: WBC) – up 0.56%
  • National Australia Bank Ltd (ASX: NAB) – up 0.07%
  • Australia New Zealand Banking Group Ltd (ASX: ANZ) – down 0.02%

For context, the ASX 200 is currently up 0.52% while the S&P/ASX 200 Financials Index (ASX: XFJ) has lifted 0.34%.

What’s going on with ASX 200 banks on Tuesday?

ASX 200 banks are trading on Tuesday amid a third rate hike in as many months. The RBA increased the official cash rate by 0.5% to 1.35% – broadly in line with market expectations.

The move is yet another attempt to control inflation, which hit 5.1% in the March quarter.

Rising rates bring positives for banks. It allows them to change their variable loan rates, generally increasing their net interest margins (NIM).

Though, it also increases the likelihood of mortgage foreclosures. That’s particularly worrying as 23.1% of new residential mortgage loans funded during the March quarter were found to have debt-to-income ratios of at least six times.

Passing on the last three rate hikes to borrowers would see those holding a $500,000 mortgage with 25 years remaining paying $333 more in repayments each month, reports RateCity.

On top of that, rising rates can negatively impact housing prices, therefore lowering the value of some banks’ loan books.

It’s also worth noting that other ASX 200 banks are outperforming right now.

Shares in Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN), and Bank of Queensland Ltd (ASX: BOQ) have gained 1.19%, 0.87%, and 1.48% respectively.

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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