Why exactly is causing concern among investors?
Investor sentiment in the big four has dropped after the RBA announced a lift in the cash rate of 50 basis points to 0.85%. Shares in Westpac were the worst performing – dropping by 3% - while Commonwealth Bank, National Australia Bank, and Australia and New Zealand Banking Group traded at around 2% lower.
The central bank justified its hefty rate hike earlier this week saying it was necessary to battle rapidly increasing inflation, but the move has disturbed the trading environment for Australia’s major banks.
Westpac was the first of the four to pass on the rate increase in full to new and existing variable home loan customers. ANZ, CBA, and NBA followed shortly after.
Read more: Major banks react to RBA's hefty rate rise
This is causing concern among investors because each of the big four banks last month outlined pressure on margins amid rising competition in both the business loans and key home loan market. Higher wages, more staff, and investment in new technology are likewise contributing to higher costs, finder.com.au reported.
With the latest data already showing cooling demand in Australia’s property market, banks are set to feel the higher rates hardest on their key home loans business.
While most borrowers are ahead on their repayments, economists predict that rates will continue to rise in the near future, which will in turn increase the risk of defaults as borrowers deal with surging inflation, higher food and petrol prices, and the newly increased interest rate.
Read next: RBA announces hefty rate hike
Credit reporting agency Equifax said it was already observing an increase in arrears in personal loans, with those overdue for more than 90 days rising to levels not seen since mid-2020.
