Updated January 19, 2019 06:11:42 Aussie banks are bracing for more job losses in the coming years as the world’s biggest economy struggles with a severe recession.
Key points: The Reserve Bank is forecasting a 3.5 per cent drop in lending to the sector in 2020 and a 5 per cent rise in 2021 The Government is already planning to cut interest rates to help offset the drop in borrowers and businesses A major bank has announced that it will take on more lending as its share price declines, while another has said it will lay off thousands of employees in the financial services sector.
“We will take the opportunity to lay off some staff and the impact on the business is expected to be significant,” Reserve Bank Governor Stephen Keating said in a statement.
“The banking sector is facing a serious headwind and we will take appropriate action if necessary.”
The Reserve Bank also expects to cut the deposit rate by 0.75 per cent in 2020, and by 1.5 percentage points in 2021.
While the rate cut is expected, it is expected the impact will be minimal as many investors will have taken their money out of the banking sector.
In the meantime, the banking industry is already facing a severe headwind, with a fall in lending expected to take the total down by $US2.2 billion ($2.7 billion) in 2020 compared to the same year last year, according to the latest Reserve Bank of Australia (RBA) figures.
Bank of America Merrill Lynch (NYSE:BAC) expects its lending to fall by 3.6 per cent this year, with the impact likely to be negligible.
“This forecast is based on assumptions about the level of loan expansion and lending activity in the Australian banking sector,” it said in an analysts note.
“The expected slowdown in lending will likely have minimal impact on bank profitability, and we expect this will be driven by reduced lending to commercial borrowers, particularly those in distressed situations.”
The bank also expects its shares to fall 6.5 points in 2020 as the cost of lending to its commercial customers is expected fall by 7.4 per cent.
“While we expect some reduction in this forecast over the medium term, we believe the expected decline in lending activity will have minimal effect on the bank’s profitability,” the bank said.
“Overall, we expect the impact of this forecast to be minimal, as the impact would be primarily driven by lower lending activity to commercial and residential borrowers.”
Goldman Sachs (NYSE “GS”) said its loan growth would fall by 0,5 per-cent, with its loan to capital ratio expected to fall 2.5 basis points.
“Lower lending activity from commercial borrowers will have the greatest impact on GS’s results and profitability,” it added.
“As commercial lending has historically driven higher loan growth in the longer term, the impact is expected mainly to come from higher levels of loan losses, as borrowers are less able to refinance their loans at higher rates.”AAP/ABC