'I'm fearful' Australian bank stocks could fall, analyst says

  • Speaking to CNBC at the 2018 CLSA Investors' Forum in Hong Kong, Brian Johnson said Australian banks "look relatively cheap, but I'm fearful they will get relatively cheaper."
  • With mortgage loans at 1.7 trillion Australian dollars ($1.2 trillion) in the country, the Reserve Bank of Australia's capacity to raise rates is limited, meaning that the Australian dollar will probably continue to weaken, he said.
People are reflected in a glass while looking at electronic boards displaying stock information at the Australian Securities Exchange.
Brendon Thorne/Bloomberg via Getty Images
People are reflected in a glass while looking at electronic boards displaying stock information at the Australian Securities Exchange.

Australian banks are probably not a good buy for investors, with federal elections coming up and the country's currency set to weaken further, according to a banks analyst from investment group CLSA.

Speaking to CNBC at the 2018 CLSA Investors' Forum in Hong Kong, Brian Johnson said: "I think the banks look relatively cheap, but I'm fearful they will get relatively cheaper."

He explained why: With mortgage loans at 1.7 trillion Australian dollars ($1.2 trillion) in the country, the Reserve Bank of Australia's capacity to raise rates is limited, meaning that the Australian dollar will probably continue to weaken.

Rates are already expected to stay unchanged. The central bank has not raised rates for seven years, and ended its September meeting with rates held again at 1.50 percent. Fears of a global trade war and strains in emerging markets have also reinforced investors' suspicions that rates will stay low for a long time to come.

There's another factor which could spell bad news for Australian banks and homeowners alike: Federal elections in the country are coming up.

The opposition Labor Party is expected by some to win, so that means it could get rid of some existing major policies like the 50 percent capital gains tax discount on existing home loans and investment properties, Johnson said.

Large banks in Australia may also be set to face further trouble, in the form of a class action suit.

Law firm Slater and Gordon, which is launching the suit, will allege that bank-owned superannuation funds — a form of pension plan — owe more than 1 billion Australian dollars to customers in over-inflated fees, and took extra profits from interest on such accounts, according to Australian media reports.

For a start, it is targeting Colonial First State (owned by Australia's Commonwealth Bank Group) and AMP Superannuation.

But Johnson said any penalties slapped on the banks are unlikely to hurt them.

"$3,000 per customer sounds dramatic, a billion dollars sound dramatic. But at the end of the day, that kind of penalty — and these things have a long track record of not coming out anywhere near the numbers originally speculated — is relatively immaterial for the Australian banks," he said.