CBA’s results showed it had a total exposure of $11.2 billion to the construction sector across the group.
Jefferies Financial Group on Thursday reported slowing CBA credit growth and rising cost pressures after the bank warned of a tough outlook in its annual results on Wednesday.
The nation’s largest lender, which has the worst consensus rating among banks worth at least $20 billion, now has no equivalent buy recommendation after a downgrade by Jefferies Financial Group Inc.
“Macro outlook for Australian banks deteriorating” as rising rates curb credit expansion, Jefferies analysts led by Brian Johnson wrote in a note. Intense deposit competition was also weakening the company’s net interest margin outlook.
Commonwealth Bank now has zero buy ratings, five hold ratings and 10 sell ratings, according to data compiled by Bloomberg. The other three major Australian lenders each have at least six buy ratings.
Aside from construction, Vacy-Lyle said discretionary retail could be vulnerable to rising interest rates, saying data from the bank already showed a slowdown in spending on shoes and clothing, for example.
“Traditionally they’re a bit of a canary in the mine, I guess, for a downturn in consumption,” he said.
Faced with these risks, Vacy-Lyle said he was optimistic about agriculture – despite some uncertainty about the threat of foot-and-mouth disease. Overall, he predicted business customer stress would increase, after a “very, very benign credit environment for a very long time”.
“There will be an increase in stress, but we are cautiously optimistic that all will be well. There will be failures; there are always failures in times like this,” he said.
Despite weakness in sectors such as construction, banks overall are benefiting from unusually low levels of bad loans, following COVID support that led to below-average insolvencies.
Asked if there was a backlog of businesses that had been kept afloat during the pandemic and may now be struggling, Vacy-Lyle pointed to the outstanding debt that businesses owed to the Australian tax authorities , but said he thought the ATO would “do the right thing”. ” in collecting the money owed to him.
The low level of bad loans was a key surprise in CBA’s earnings on Wednesday, with Citi analyst Brendan Sproules saying, “While investor concerns about asset quality have grown in recent months, they appear not to be not shared by CBA management in this result. ”
The latest figures from the ATO show that recoverable tax debt owed by small businesses rose to $24.3 billion in 2020-21, from $16.5 billion in 2018-19. A spokeswoman said the ATO prefers to work with taxpayers to resolve their situation through engagement rather than execution.
“The ATO offers tailored support and assistance to taxpayers with unpaid debts and our preferred approach is always to work with taxpayers to resolve their situation through engagement rather than execution,” said the gatekeeper. word.