In a recent article in BrokerNews it was stated that banks may be looking to borrowers to improve subdued profit earnings, reported the ABC News.

Commonwealth Bank of Australia recently revealed it bounced back from a small decline in profits last year, posting a profit of $5.7bn result this year. Other banks are expected to show similar returns.

But analysts are predicting the days of big bank returns are coming to an end as slower credit and profit growth become the norm. According to Brian Johnson, a banking analyst at investment group CLSA, new regulations combined with market forces will restrict growth in the medium term.

“Back in the old days, banks’ business used to be borrowing money cheaply and lending it out expensively. Over the 2000s borrowing money cheaply was a very easy thing to do so you didn’t have to worry about that. It was all about lending money, “he told ABC News. “The new era that we are going back to, the borrowing money cheaply part actually gets to become quite difficult”.

Johnson added that the major banks’ strategy of growing profits on the back of home lending has its faults. ”We certainly have done quite a bit of work on this and our view is, as interest rates rise, first home buyers who borrowed at the lows of the interest rate cycle when the cash rate was 3 per cent, their ability to service those loans as interest rates rise is a real question mark”.

Johnson warns borrowers that the major banks are likely to try and make up profit shortfalls by increasing the margin on their home loans.

If you would like to discuss this topic please feel free to contact John Whitten by phone on 07-49722081 or via email at jwhitten@ihl.net.au