MARKETS SPECTATOR: Bank loan blockages

Morgan Stanley’s Richard Wiles says loan growth may not be as robust as previously forecast suggesting that competition among the four biggest Australian banks may crimp margins amid suspicions the bad debt cycle is about to rear its ugly head.

“Loan losses may rise if conditions don’t improve,” writes Wiles in a research report.

Business conditions in Australia have softened, Wiles says, admitting his forecast for a pick-up in non-housing loan growth in the 2014 financial year to 4.5 per cent from 1 per cent in 2013 may not come to pass.

He says competition among ANZ, Commonwealth Bank, NAB and Westpac in a weak lending environment has led to price competition. Margins for the four banks may be under pressure, he adds.

The Morgan Stanley analyst’s only buy recommendation is on Commonwealth Bank stock. 

At 1453 AEST ANZ shares were down 2 cents, or 0.1 per cent, to $27.39. Commonwealth Bank’s stock had fallen 18 cents, or 0.3 per cent, to $65.88. NAB shares had slid 23.5 cents, or 0.8 per cent, to $28.745. Westpac shares had dropped 9 cents, or 0.3 per cent, to $27.63. 

ANZ shares have fallen 14 per cent since their 52-week high of $31.84 on April 30. Commonwealth Bank shares have dropped 11 per cent since their 52 week high of $73.49 on May 20. NAB shares have slumped 16 per cent since their 52-week high of $34 on April 30. Westpac’s stock has plunged 19 per cent since its 52-week high of $34.06 on May 1.

The benchmark S&P/ASX200 Index is down 10 per cent since its 52 week high of 5220.987 on May 14. The index had fallen 61.40, or 1.3 per cent, to 4677.40 at 1501 AEST.