Aussie Banks: Macquarie Upgrades Sector, Lifts Rating on ANZ and NAB

Macquarie has upgraded Australia’s banks sector to neutral as the big four lenders raise rates on home loans.

The brokerage also raised its rating on ANZ Banking Corp. (ANZ.AU) to outperform and lifted National Australia Bank (NAB.AU) to neutral.

The upgraded view on Australian banks came as Commonwealth Bank (CBA.AU), Down Under’s biggest mortgage lender, last week joined its rivals and raised its rates on interest-only loans by 30 basis points. The higher rates come after the Australian Prudential Regulation Authority ruled earlier this year that interest only loans could constitute a maximum of 30% of mortgage lending.

While Macquarie sees many challenges for the banks as loan growth slows, it does like the recent moves:

However, banks continue to surprise us with their ability and preparedness to reprice their mortgage books.

Australian banks stocks have struggled over recent weeks after the Australian government unveiled a new levy in May’s federal budget that will apply to the big four banks and Macquarie Group (MQG.AU). The S&P/ASX200 Banks Index is down 10% since early May. But Macquarie sees value:

We acknowledge that value is starting to emerge after recent share price underperformance (the banks sector is trading at ~6% discount to its 5-yr PE rel)

Since the budget was handed down on May 9, NAB has fallen 8%, Westpac (WBC.AU) has lost around 7%, and ANZ is down 1%.