The big four Australian banks are likely to continue to benefit from the ‘wealth effect’ created by strong asset values, with investor concerns about high residential mortgage exposures “overdone”, says Morningstar.
In an analyst note about Westpac, Morningstar said Australia's "rational and highly profitable major bank oligopoly is alive and well".
The dominant position of the major banks will be further fueled by the ‘wealth effect’ from strong asset values, the expected rise in household spending, ongoing contributions from exports, the east coast residential construction boom and continuing government investment in infrastructure, said the research house.
Westpac remains Morningstar's preferred major Australian bank, with its home-loan growth strategy viewed as a core strength rather than a key weakness.
"Investor concerns, centred on [Westpac's] large exposure to residential mortgages, are overdone ... We see solid earnings upside potential, with international investors continuing to focus too much attention on negative short-term issues," said Morningstar.
The pressure on the banks to raise capital in order to satisfy the prudential regulator is likely to ease in coming months, said the note.
"We expect APRA will allow the major banks to raise the expected higher minimum capital requirements organically over a three-to-four year period," said Morningstar.
"Despite regulator and media noise, it is becoming increasingly clear the capital raising scenario has been delayed for Westpac and major Australian bank peers.
"This is a positive outcome and one we have been pushing for several months at least."
Investors should be looking to increase allocations to defensive assets this year, with relations between the US and China contributing to m...
Rapid changes in the financial sector are opening opportunities for investors, with the introduction of open banking and digitization to acc...
Australia’s competition watchdog is proposing to accept an application for a certification trademark that signals to potential investors t...