Investors in Australia’s largest banks are bracing for a sharp slowdown in profitability after mortgage demand plummeted and property market indicators deteriorated across the board.
The country’s four biggest lenders—Commonwealth Bank, ANZ, National Australia Bank and Westpac—collectively control more than 70% of Australia’s A$2.5 trillion ($1.77 trillion) mortgage market and represent roughly 24% of the S&P/ASX 200 index. Over the past year, three of the four have seen share prices decline between 2% and 12%, underperforming international peers that gained 11% to 30% over the same period.
Third-quarter home-loan application volumes have fallen sharply. Westpac reported a 20% drop, while National Australia Bank and Commonwealth Bank each recorded a 15% decline. ANZ saw a 12% fall. Auction clearance rates have slumped to their lowest levels in six years, and national average property prices have declined about 2% over the past four months, according to property consultant Cotality.
Analysts warn the downturn reflects broader economic headwinds. Citi has revised its revenue growth forecast for the banking sector down to 2.9% in the 2027 financial year, from a prior estimate of 4.4%. Residential developer Bathla Group, which entered external administration to restructure A$3.2 billion in debt, cited a confluence of adverse factors as the cause.
Minh Pham, senior investment analyst at Milford Asset Management, said the outlook has darkened, with few bright spots emerging. "It does feel like the outlook is deteriorating and there's not a whole lot of bright spots that can be talked about," Pham said. "We're definitely more on the bearish side." He added that softer house prices and weaker consumer spending could crimp business credit growth.
Cameron McCormack, senior portfolio manager at VanEck, argued that the banks’ valuations may be overstated. "From a valuation standpoint, we think that the banks are probably a little bit too expensive," he said. "We think there's better growth at a reasonable price available particularly among mid caps and small caps at the moment."
Mark Nathan, head of fundamental research at Regal Funds Management, described the lending environment as challenging. "It's a tough lending environment," he said. "(Loan) volumes will moderate, but also you've got everybody competing for a small pie."
