Morgan Stanley has recently run the ruler over the major ASX banks and, for three of the big four, has downgraded its price targets.
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Time to tread carefully
In a recent research note sent to its clients, the broker said it had a "more cautious outlook" on the banks.
As they said:
We've adjusted our loan growth and loan loss forecasts to reflect the initial impact of a weaker economic outlook.
The broker was not ringing the alarm bells, adding that the next reporting season "should demonstrate a continuation of recent trends: good volume growth, stable margins, no surprises on costs, and sound credit quality''.
But they said a shift in operating conditions meant the outlook for loan growth and credit quality would be important.
Their note of caution related in part to the Reserve Bank of Australia (RBA) flagging the potential for a "stagflationary shock", in which the economy experiences flat growth coupled with inflation.
Morgan Stanley said National Australia Bank Ltd (ASX: NAB) was the most vulnerable of the big four.
As they said:
In our view, NAB is the most vulnerable of the major banks to the shift in operating conditions. At the 1H26 result, we expect close scrutiny of outlook commentary, the business lending pipeline, credit quality lead indicators, collective provision coverage … capital buffers, and capital management decisions.
Morgan Stanley has marginally reduced its price target on NAB shares from $39.80 down to $39.30.
Economic factors weighing
Overall, Morgan Stanley is expecting slower loan growth, as it said:
We believe the combination of RBA rate hikes, higher fuel costs, softer consumer sentiment, and a deterioration in business conditions point to a slowdown in loan growth. Our Macro+ team's lead indicators suggest that housing loan growth has peaked and that business loan growth will be weaker. We have downgraded our major bank Australian housing loan growth forecasts by about 1% in FY26 and about 0.5% in FY27.
Among the other banks, Morgan Stanley has reduced its price target on Commonwealth Bank of Australia Ltd (ASX: CBA) shares by just 20 cents to $131.
They are forecasting the third-quarter profit to come in at $2.74 billion, down 1.5% compared with the average of the past two quarters.
Morgan Stanley's price target for ANZ Group Holdings Ltd (ASX: ANZ) shares has been reduced by 80 cents to $37, adding "we think investors are more cautious than consensus about margin trends and mortgage/SME loan growth''.
For Westpac Banking Corp (ASX: WBC), Morgan Stanley kept its price target stable at $34.40.
