CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

What the Big Four Banks are doing to stimulate Australia’s economy

As the coronavirus crisis escalates, we examine what the Big Four Banks and other institutions are doing to help stimulate Australia's economy.

ANZ, CBA, NAB and Westpac share prices: the current response

It’s been a busy week for Australia’s banking sector.

Interest rates have been slashed to a record low of 0.25%; the Reserve Bank of Australia today revealed that it is offering to buy as much as $5 billion worth of government securities; and a string of other bank-focused initiatives, aimed at combating the economic slowdown brought on by the coronavirus (Covid-19) crisis have been also announced.

Front and center to all this was an announcement from Anna Bligh – CEO of the Australian Banking Association (ABA) – that small business loan repayments would be put on hold for six months.

Here, Ms Bligh said:

‘Australian banks will defer small business loan repayments for six months where those businesses need assistance as a result of covid-19.’

This move, stressed the ABA CEO, ‘could put as much as $8 billion back in the pockets of small businesses.’

Capital requirements in focus

Besides freezing small business loans, the Australian Prudential Regulation Authority (APRA), looking to get into the action itself, announced that it would be relaxing its expectations around Australian banks' capital positions.

Here the regulator said:

‘APRA is advising all banks today that, given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy.’

The regulator, proving its practicality, pointed out that the ‘objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this.’

In response to this move, Swiss banking giant UBS did however warn that:

‘The market may be concerned should banks’ stated CET1 begin to fall, potentially resulting in sharp reductions in share prices.’

Mind you, though the Big Four Banks saw their share prices rally sharply today; for the month overall, we have already seen a substantial reduction in bank share prices, as shown in the table below:

Company

Current share price*

1-month performance*

ANZ

$15.81

-43.95%

Commonwealth Bank

$63.15

-30.60%

Westpac

$15.56

-43.29%

National Bank of Australia

$15.61

-46.65%

**Data correct as of 20 March, 12:11pm (AEDT).

Cuts, cuts and more cuts

Finally, though the Reserve Bank of Australia (RBA) slashed official interest rates to a historic low of 0.25% this week, only two of the Big Four Banks made adjustments to their loan rates.

Commonwealth Bank of Australia was one of the outliers here, while making no changes to its standard variable mortgage rates, announced that it would slash its fixed rate mortgages by 70 basis points to 2.29%

The bank noted that these changes would save customers approximately $400 per month, as well as release up to $3.2 billion in cash for Australian households.

ANZ also passed on some of the cut, noting that the bank would:

'Decrease variable interest home loan rates in Australia by 0.15%pa across all Variable rate indices, effective from 27 March 2020.'

Interestingly, in response to this, Goldman Sachs pointed out the ‘fact CBA felt they were able to hold back all of the RBA rate cut from variable rate mortgages (despite the RBA’s efforts to transmit lower funding costs through the economy), it does suggest NIM pressures remain elevated. For the sector, we current forecast yoy NIM decline of -7/-8 bp in FY20/21E.’

On the other hand and overall, Morgan Stanley noted that ‘the 25bp cut in the cash rate reduces [bank] margins by ~3bp, net of hedging.’

How to trade the ASX Financial Index

Not interested in buying or selling the Big Four Bank stocks individually, but still have an opinion on Australia’s financial sector as a whole? You can use CFDs to trade the ASX 200 Financials Index LONG or SHORT through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) the ASX 200 Financial Index, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Australia 200 Financials’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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