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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Why the Big Four Banks surged on Friday

We examine some of the key implications behind Treasurer Josh Frydenberg’s proposed changes to the Australia’s credit laws.

ANZ, CBA, WBC and NAB share prices Source: Bloomberg

ANZ, CBA, WBC and NAB share prices surge on proposed credit laws

Australia’s big four banks all saw their share prices surge on Friday, after Treasurer Josh Frydenberg announced that lending rules were set to be relaxed, under a proposed revision to the country’s consumer credit laws.

In response to this proposed policy shakeup, the big four banks were all bid higher during the opening hour of Friday’s session. At the time of writing:

These moves helped push the ASX 200 benchmark higher by lunch, up some 1.58% to the 5,968 point level, by 12:19 PM.

The regional banks were also up at the time of writing, though by a less significant margin than their large-cap counterparts.

In spite of today’s strong open, the big four banks continue to trade significantly off their 52-week highs – as low interest rates, regulatory pressure and macroeconomic uncertainties weigh on the sector.

New lending rules in focus

On Friday, 25 September, Treasurer Josh Frydenberg revealed that he was seeking to streamline and simplify the loan process within Australia – in a move that would see the focus transition from ‘lender beware’ to ‘borrower beware’.

These revised credit laws would target home loans, credit cards, payday lending and personal loans – and ultimately see the Australian Securities and Investments Commission’s ability to enforce responsible lending rules across the banks and other lending institutions abolished, according to the AFR.

The spirit of these revisions, said Mr Frydenberg, are aimed at improving the options for borrowers, with it being noted that:

‘By simplifying the loan application process for borrowers it will reduce barriers to switching between credit providers, encouraging consumers to seek out a better deal.’

Looking forward, the Treasurer stressed that:

‘As Australia continues to recover from the COVID-19 pandemic, it is more important than ever that there are no unnecessary barriers to the flow of credit to households and small businesses.’

‘Maintaining the free flow of credit through the economy is critical to Australia's economic recovery plan.’

Concerns emerge

These proposed changes come after some have argued that Australia’s flow of credit may have become too restrictive in the wake of the Hayne Royal Commission. For example, last month, RBA Governor, Philip Lowe, said:

‘The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad, because the bank didn't understand the customer; if it had done proper due diligence – this is the mindset of some – the bank would never have made the loan.’

Finally, the Australian Banking Association (ABA) responded positively to the suggested alterations to Australia's consumer credit laws, saying:

'With the right balance, these changes will simplify lending rules while maintaining strong protections for borrowers and improving protections for those vulnerable consumers using debt management firms, small amount credit providers and consumer leases.’

How to trade bank stocks

What do you make of these developments: are you bullish or bearish on the big four's prospects? Whatever your view, you can trade the likes of ANZ, CBA, Westpac and even NAB – long or short – using IG’s world-class trading platform now.

For example, to buy (long) or sell (short) ANZ using CFDs, follow these easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘ANZ’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. 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.

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