JP Morgan: Bank Price War is Temporary
Australian banks have been shaving off their headline mortgage rates and some are even tossing cash bonuses in spirited efforts to lure more banking customers to sign up but analysts are doubtful that the trend will be sustained in light of the global economic uncertainties.
"Although discounting off headline rates is nothing new, the speed with which it has developed, and the depth at which it now is, is quite remarkable," according to JPMorgan banking analyst Scott Manning.
Manning recalled though that the pricing war that banks are currently waging was seen right before the onset of the global financial crisis in 2008, and that condition appears to be dawning again as the debt crisis in Europe sends out indicators that the problems will be far from over.
As international financing costs start surging, the bank tussles will surely fizzle out, Manning said as reported on Thursday by the Sydney Morning Herald (SMH).
At present, JP Morgan sees the global wholesale funding as somewhat stranded in a precarious situation and Manning holds the impression that "we are now getting to the point where ... discounting will be unsustainable in the long term."
He predicted that banks should be shifting gears soon and backtrack on their home loan policies within the next six months as JP Morgan released its latest assessment on the global wholesale markets, which the firm said have been witnessing noticeable snags in the past few weeks.
Despite the gloomy prospects, Australian banks are scrambling to attract customers by icing their mortgage services while seemingly well aware that quite a number of households have started shying away from acquiring new loans, notwithstanding the juicy packages that banks have arranged.
The softening outlook, Manning said, can be attributed to underlying struggles in the domestic business environment and the continued hold backs seen on consumer spending, two factors that he added were further absorbing pressures from stagnant economies around the world.
At best, JP Morgan has predicted on its report that housing loans would grow by an annualised rate of 6.5 percent and over the few years ahead, that growth rate, Manning added, would move in a single-digit pace.
Overall economic signs have pointed to the likelihood that the Reserve Bank of Australia (RBA) will implement a downward adjustment on its policy rates, according to the general sentiment expressed by many economists.