S&P/ASX 200 Index (ASX: XJO) bank shares have enjoyed a strong month.
This may be because investors are cottoning on to the potential profit-boosting interest rate increases the big bank stocks have enacted in 2023.
Here's how the big four ASX 200 bank shares have performed over the past month:
- Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares are up 8.1%
- National Australia Bank Ltd (ASX: NAB) shares are up 7.4%
- Westpac Banking Corp (ASX: WBC) shares are up 4.3%
- Commonwealth Bank of Australia (ASX: CBA) shares are up 5.0%
For some context, the ASX 200 is up 2.8% over this same period.
What's happening with ASX 200 bank shares and lending rates?
Investors could be piling back into ASX 200 bank shares following a series of interest rate hikes from the big banks that outpaces the increases pushed through by the Reserve Bank of Australia (RBA) this calendar year.
Data from mortgage broker Finspo (courtesy of The Australian Financial Review) shows that the big four have increased their rates to new home loan borrowers by an average of 1.32% in 2023. That's 0.32% more than the 1% in rate increases ushered in by the RBA since December.
CBA leads the pack. The biggest of the ASX 200 bank shares has boosted its CBA Extra product rate by 1.52% in 2023, to the current 6.49%. The other three have all lifted their rates by 1.25% this year.
This is a sharp turnaround from 2022, when the banks competed for new home loans by keeping mortgage rate increases an average of 0.23% below the RBA's 3% hikes.
RateCity research director Sally Tindall said, "Australia's biggest banks are trying to put an end to the new customer discounting that previously dominated the market."
According to Finspo CEO Angus Gilfillan (quoted by the AFR):
We are definitely seeing a shift towards banks managing margins over volume growth over the last six months. The big banks are doing some heavy lifting for the RBA on new loans. I expect the trend to continue over the next few months.
Indeed, while unwelcome news to mortgage holders, the sharp rate increases from the big four banks could ease the pressure on RBA to lift the official cash rate tomorrow in its ongoing battle to bring down inflation.
Earnings downgrades are still widely expected for the ASX 200 bank shares in the current reporting season. But easing mortgage competition and the ensuing higher margins could see those downgrades surprise to the upside.
