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A global investment manager believes borrowers will continue to bear the brunt of the Australian banks’ new capital targets.
In a 2016 outlook for the domestic economy, PIMCO portfolio manager Adam Bowe said Australian banks still have some catching up to do in terms of capital raisings, given the changes to mortgage risk-weights and the higher targets for overall capital levels.
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“That said, the increased costs of funding are largely already reflected in credit spreads across the entire capital structure,” he said.
“Importantly, though, even if the cost of capital is steady, the shift in the funding mix as banks attempt to meet the new capital targets will put some additional pressure on bank margins, which will most likely be passed on to borrowers.”
Because the RBA focuses on the actual market borrowing rates when setting policy, this ongoing bank margin pressure is likely to place a firm cap on the two per cent cash rate in 2016, Mr Bowe said, adding that, given other stresses in the economy, an easing bias is also likely to be maintained.
Meanwhile, Loan Market chairman Sam White told The Adviser that ongoing regulatory changes in the mortgage space will become “the new normal”.
“I wouldn't be surprised to see more interest rate movements.
“I don't think it’s inevitable, but I wouldn't be surprised to see it,” he said.
Mr White said pricing and policy movements will continue to create confusion for borrowers, creating an opportunity for brokers.
“There will be more customers for brokers but there will also be more of a challenge for brokers to make sure they're paying attention to their existing customer base and working with them as to what those customers need as things change,” he said.
[Related: Majority of new borrowers fear rate changes]
