The share price of ANZ Banking Group Ltd [ASX:ANZ] is up more that 15% since the beginning of 2019, making it the biggest gainer of the Big Four banks.
ANZ has rebounded the strongest of any of the four banks, after the scrutiny of the Hayne banking inquiry shattered the public’s trust in the institutions.
What’s setting the ANZ share price apart?
While all four of the banks’ shares have moved in relative unison since the beginning of the year, ANZ shares seem the more resilient out of the bunch.
Certainly one of the big factors playing on investors’ minds at the moment is Australia’s all-time low interest rates and the squeeze this is having on the banks’ margins.
ANZ has been rolling with the punches, so to speak, while the other three banks have been more rigid in their approach to cut in the cash rate.
The bank was the last to pass on cuts to depositors back in June, hitting depositors with larger cuts than the one it passed to homeowners. But ANZ was quick to put the pressure on in the latest round of rate cuts, passing on the full 25 basis points immediately.
That means that ANZ won’t benefit from any improvement of its net interest margin, although it will benefit somewhat after it kept some of last month’s rate cut.
Now that alone shouldn’t be enough to push the share price higher, but it is certainly helping keep ANZ competitive.
It seems that investors betting on ANZ could indirectly benefit from its borrowers having better monthly repayments in comparison to that other banks, coaxing some borrowers to refinance with their more favourable rates.
With Australia’s big four banks accounting for about 80% of the deposit market, ANZ might arguably offer the best rates of the major banks on comparable products.
A survey of their deposit products by RateCity puts ANZ’s Progress Saver paying 2.20% on top followed by Westpac’s Life product paying 2.10 per cent and NAB’s Reward Saver account paying 2.05%.
What else has been going on?
If ANZ is looking to poach borrowers from the other banks, APRA may have just given it more ammo.
The Australian Prudential Regulation Authority has removed the serviceability buffer that required banks to assess all borrowers against their capacity to repay the loan at 7%.
According to APRA, the new serviceability floor is designed to expand the current pool of potential borrowers, meaning lenders just got a much needed boost.
Under the new buffer, banks will only need to add 2.5% to the rate paid in order to assess whether the loan is suitable for the borrower — with the change in immediate effect.
With the interest rates trending lower, assessing borrowers against their ability to repay at 7% (nearly double the rate in some cases) is dumbfounding.
If we begin to see the housing market stabilise, then ANZ shares might be a good buy. Shares are trading around 12.9 times the company’s earnings, so they could offer a cheap buy providing the housing sector kicks into gear.
In other news, ANZ, along with Westpac, CBA, IBM, and Scentre have formed a company to build a blockchain-based platform for bank guarantees.
The new platform, dubbed Lygon, will transform the way businesses manage and obtain bank guarantees. Typically a time intensive process, the new digital process will eliminate the regular month long wait to just a single day.
For Money Morning
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