A happy new year from Capital Gains as we return from the break. Bank investors will be hoping it will be happier than the end of last year, when it became more and more obvious the second half of 2023 was the scene of a margin wreck.
The reporting season of late October/early November had delivered some record results but they were built on the first half, not the second. The margin erosion came from both intense mortgage competition and rising funding costs.
Both those factors have subsided: the most aggressive competitors in the mortgage space, notably ANZ and Westpac, have eased off; meanwhile, a growing expectation that inflation is moderating has seen the extra yield financial institutions were paying on their debt issues come back.
Moreover, if significant economic downturns are indeed avoided, bad debt write-offs for both the household and corporate sector should remain manageable.
