My article on Rask Media

"Is it time to buy bank shares"

Click here to read

Australian mortgages represent about 55 per cent of Australian bank loans, 25 per cent of group revenues and about 30 per cent of cash earnings, according to analysis by investment bank Morgan Stanley. 

Major banks are exposed to about $524 billion of investment property loans, which make up about 37 per cent of their Australian mortgage portfolios, according to its analysis. That compares to about 17.5 per cent in the UK and less than 10 per cent in the US.

Westpac Group has the highest exposure, with about 25 per cent of loans held by interest-only paying investors, followed by National Australia Bank, 24 per cent, Commonwealth Bank of Australia, 21 per cent and ANZ, 17 per cent.

AFR article here

The big four banks are all extremely entrenched, competitively advantaged businesses. They will be around for a long, long time.

The pace of growth experienced since the turn of the century has been phenomenal, driven by a surging housing market, benign economic conditions, increasing household income (due also to the increase in dual income families), falling interest rates and vertical expansion (eg into Welath management).

My view is that these drivers will seriously slow in the coming decade. 

It's also worth remembering that banking is typically very cyclical -- something that is easy to forget in Australia given we haventy had a recession in more than a quarter of a century!

Plus, we don't yet know the outcome from the Royal Commission. It could act to limit profitability via a number of regulatory requirements

So for me, I'm only interested at a low enough price. (See my forecast page)