ANZ, NAB and CBA shares: what’s the outlook following RBA rate cut?

As interest rates fall to record lows, the threat to bank lending margins grows ever more present.

Indeed, such were the concerns heading into the Commonwealth Bank of Australia’s full-year results, released in August.

Citing research from Morgan Stanley, we previously noted that the RBA’s decision to cut rates to a historic low of 1.00% – and now indeed their decision to cut rates further, has ‘created significant downside risk for the bank’s margins moving forward.’

Such analysis goes a long way to explain the big four’s hesitation to pass on the RBA’s interest rate cut – of 25 basis points – in full to customers.

As it stands, only the National Australia Bank and the Commonwealth Bank have passed on the rate cut – not in full mind you – while both ANZ and Westpac have remained silent on the matter.

Questions of passing on or not aside; unsurprisingly, Australian bank shares fell at the open.

The Commonwealth Bank (ASX: CBA) share price fell 1.45%, the Australia and New Zealand Banking Group (ASX: ANZ) share price dropped 0.88% and the National Australia Bank (ASX: NAB) share price declined 2.78% – all in the opening 30-minutes of trade.

In response to the RBA's decision, JP Morgan commented that it expected a challenging mortgage margin climate to persist.

CBA share price in focus

Following yesterday’s interest rate announcement – the Commonwealth Bank – tweeting a little after 6PM, announced that:

‘We have made changes to some of our home loan interest rates and savings accounts.’

Likely the headline cut was to the bank’s ‘owner Occupied Principal and Interest Standard Variable Rate home loans,’ which were ‘reduced by 0.13% per annum (p.a) to a new record low rate of 4.80% p.a.’

Followers on twitter in general reacted with disappointment, seemingly frustrated that CBA did not pass the rate cut on in full. Treasurer Josh Frydenberg, commenting on such matters, argued that:

‘People should shop around, get the best deal, but also make their displeasure known to their banks because the rate cut should be passed on in full and that would be a good thing for consumers.’

Analysts have been similarly disappointed in recent times, taking a relatively negative view on the Commonwealth Bank of Australia (ASX: CBA).

According to the Wall Street Journal, the average consensus rating on the CBA is underweight, with only one analyst rating the bank a buy, while five and seven analysts rate the stock a hold and a sell, respectively.

NAB share price: new costs materialise

In a slightly more straightforward announcement and in response to the RBA’s interest rate decision, NAB tweeted that the bank would:

‘Lower its variable interest rates for all home loan customers by between 0.15%pa and 0.30%pa, effective Friday 11th of October 2019.’

Though this rate cut pass on ranks as a key positive for consumers, the NAB share price fell as much has 2.78% in the first 30-minutes of trade; after the bank revealed additional charges as they related to ‘increased provisions for customer-related remediation and a change to the application of the software capitalisation policy.’

Such charges, noted the bank, are likely to see second-half 2019 cash earnings reduced by approximately A$1,123 million.

Overall, analysts have a relatively positive view on NAB’s prospects – with the Wall Street Journal noting that the analyst consensus for the bank is currently overweight.

Mind you, this positivity has its limitations, with the 12-month share price targets for NAB ranging from A$24.50 to A$33.00 per share, according to Bloomberg Data.

ANZ share price: to pass on or not to pass on?

By comparison to NAB and CBA, ANZ has made no comment on whether it will pass on the RBA’s interest rate cut – in full or in part to its customers.

Even though the business-focused bank has yet to comment on its intentions to pass on the RBA’s rate cut to consumers, it followed the other banks down in the morning session. By 11:12 AEST, the ANZ share price had fallen around 1.85%, closing in on the A$28 per share mark.

According to Bloomberg Data, the highest price target on ANZ (ASX: ANZ) sits at A$30.00, from Evans & Partners; while Morgan Stanley has an underweight/ in-line rating on the bank and a price target of A$25.80.

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