Australia’s big four banks: growth statistics & the dividend outlook

We examine Morgan Stanley’s FY20 dividend outlook for ANZ, CBA, Westpac and NAB; as well as look at some key loan growth statistics from the last 12-months across the banking sector.

For a long time, the expectation that loan growth across the big four would remain stable seemed an almost unquestionable assumption.

Indeed, while the trends behind that growth have proven mostly consistent for many years, recent research from Morgan Stanley argues that these trends begun to diverge in 2019, due to four key factors.

Specifically, Morgan Stanley posits that stricter lending requirements, various regulatory measures taken by APRA, 'lower system loan growth' overall, and more fierce competition from the non-big four banks have all impacted the previously once-thought unquestionable status quo of the big four.

Adding to such issues, the investment bank points out that:

'Downward pressure on margins is accelerating due to front book competition, rate cuts and the flat yield curve.'

With all that considered, below we examine some of Morgan Stanley’s key statistics concerning loan growth from CY19 – with a key focus on residential owner-occupier and investment property loan growth across Australia’s big four banks.

Big four loan growth in focus

Looking at total Australian housing loan growth over the last year, we see CBA leading that way at (+4.1%), followed by Westpac at (+0.5%), NAB at (-0.5%), and ANZ at (-2.4%).

Examining these growth figures on a more granular level, we see there has been significant owner-occupier growth over the last year, with CBA at +6.2%, NAB at +3.4%, and Westpac at +2.3%. ANZ is the laggard here, with its one-year owner-occupier loan growth estimated to have fallen by -0.1%.

Surveying investment property loan growth – a key feature of Australia’s property market – we see a similar pattern emerging over the last year. Again, CBA leads the pack here, witnessing loan growth of +0.4% during that period. The remaining big four banks all saw investment property loan growth decline, with ANZ witnessing the largest decline, at -6.4%, NAB followed closely behind at -4.7%, while Westpac witnessed a slight contraction of -1.7%.

For many, and after looking at those figures, it may prove unsurprising that CBA’s share price has also been the best performing of the big four over the last year, rising 13.87% in that period. NAB, after a relatively good run, gave up much of the gains it experienced in 2019 towards the back half of the year – with the bank currently sitting on a one-year gain of 1.37%.

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ANZ, CBA, Westpac & NAB share prices: the dividend outlook

With Morgan Stanley expecting little chance of a rebound in big four loan growth during 2020, the investment bank also anticipates that ANZ, NAB and Westpac will all see a decline in profitability in FY20. Interestingly however, the investment bank argues that CBA will see its reported cash profits rise from $8,706m in FY19 to $8,854m in FY20.

As a result of these weakened expectations, the big four's dividends (bar CBA) are also anticipated to suffer from FY20 to FY22.

Specifically, in-step with the above positive comments concerning CBA, Morgan Stanley believes that unlike the other three of the big four – CBA will not see its dividend decline from FY20 to FY22.

On this front, Morgan Stanley argues that CBA’s dividend per share will remain flat at 431 cents per share – from FY20 to FY22.

By comparison to this modestly favourable outlook, NAB is expected to see its dividend per share decline in FY20 – hitting 150 cents per share. In FY19, NAB’s dividend per share came in at 166 cents per share.

ANZ and Westpac are also both expected to see their dividends decline in FY20. In ANZ’s case, the bank’s dividend per share is anticipated to hit 140 cents per share – down from 160 cents per share from the prior fiscal year. Overall, Westpac’s dividend per share is set to decline slighlty less – on an absolute basis, according to Morgan Stanley – with the investment bank expecting it to reach 160 cents per share in FY20.

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