NAB, Westpac, ANZ, CBA profit forecasts cut by Citi amid slowing home loan growth
Citi’s research team has cut its profit forecasts for all four major banks as it said proposed tax changes to housing will slow demand for loans.
Bank profits and house prices are tipped to fall in tandem as proposed tax changes, rising interest rates, and sinking consumer confidence erase household wealth.
On Wednesday, investment bank Citi cut its profit forecasts for big four banks, NAB, Westpac, ANZ and CBA in a move it tied to slowing home loan growth as a result of proposed tax changes to housing.
In May, the Labor Government’s Budget flagged plans to end negative gearing for investors in established residential properties from July 1, 2027.
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By continuing you agree to our Terms and Privacy Policy.The Government said the move will help younger generations buy first homes as prices become more affordable and investors are pushed out the market.
Broker Citi now expects the retreat of property investors means total mortgage credit growth to tumble from around seven per cent in 2026 to three per cent to four per cent over the next 12 to 18 months.
“Heading into the Budget, house prices had already started to roll over as the market has digested 75 basis points of cash rate rises, expectations of more to come and the impact of the conflict in the Middle East,” said analyst Tom Strong.
As a result of the expected downturn in housing, Citi advised investors to sell CBA shares and cut its price target on Australia’s largest home loan lender by 3.6 per cent to $135 per share.
Mr Strong also warned the expected halving of total loans made will slowly translate to trimmed profit. This is because loans to investors are made at higher interest rates than those to owner occupiers and are the most profitable for the banks.
Short sellers lift bets on bank shares falling
Citi’s gloomy outlook for the major banks is shared by short sellers and hedge funds lifting bets on the lenders shares falling. A short seller profits when share prices fall.
Since the shock Budget on May 12, the total number of CBA shares sold short has jumped from 28 million to 34.7 million, according to the latest ASIC data.
The number of CBA shares held short is at a 10-year high as pessimism builds about the outlook for the bank’s profits and economic growth. In total hedge funds have bet about $10.9 billion worth of shares in the big four banks falling, with around half of that in the $5.6 billion worth of CBA held short.
Since the Budget, shares in Australia’s largest bank, economic bellwether, and second-most valuable public company have fallen from $174.01 to $160.24.
“The domestic macroeconomic backdrop has taken on a new dimension post-Budget, with uncertainty around the impact of future taxation arrangements for housing impacting both weekend auction clearance rates and listings in recent weeks,” said NAB economist Sally Auld.
The economist now expects the brewing economic downturn to mean the Reserve Bank’s rate hiking cycle is over.
Ms Auld added that NAB now thinks differently to the market consensus and expects the central bank’s next move to be a rate cut, although the timing is uncertain.
House prices forecast to drop
Elsewhere, this week UBS joined a chorus of economists and major banks warning to expect house price falls over the next 12 months. UBS said it now forecasts house prices to fall up to five per cent over the next 12 months.
On the upside, UBS said rising wages for workers, alongside increased construction costs, rental prices, and immigration should protect the housing market from further declines.
Still falling confidence is expected to spill over other areas including online advertisers of residential property such as REA Group.
On Wednesday, UBS analyst Lucy Huang downgraded the investment bank’s rating on shares in the $20 billion property giant from buy to neutral on worries the changes to negative gearing will discourage existing property investors from selling.
Based on Australian Tax Office estimates and UBS data there are around 3.3 million investment properties in Australia, around half of which are negatively geared.
Under the government’s proposed Budget changes properties acquired before May 12 can continue to negatively gear until sold.
On UBS’ estimates the number of properties offered for sale in 2027 could fall around eight per cent as investors become reluctant to sell.
The worries around the future and falling confidence have sent REA Group shares 16 per cent lower in less than a month since the Budget.
This week, Westpac’s latest monthly survey showed confidence among Australians hit its second-lowest level since 2023 as the declines are fuelled by ongoing cost-of-living pressures.
Elsewhere, shares in NAB are down nearly 5 per cent, with Westpac losing 4.6 per cent. According to Dow Jones news wires, 15 out of 17 professional analysts covering CBA shares also advise to sell.
