Question 1: I have been looking at interest rates and home prices over the last few years. With your banking hat on, would the banks already be factoring in interest rate rises with borrowers now?
Answer: Regarding interest rates, fixed-rate home and business lending rates for new loans have already moved considerably higher, because they are effectively linked to the government bond rate. Six months ago, the 3yr government bond rate was 0.10% (held down artificially by the Reserve Bank), today it is about 2.2%. Variable-rate loans have not moved, because they are largely priced off the RBA cash rate and that still sits at 0.10%.
Do Banks factor in higher interest rates into their lending assessments? Probably, although they don’t publish how they calculate “loan serviceability”. The regulator, APRA, requires that they add a margin of about 3% to the current variable lending rate when assessing the capability of a borrower to service the loan. That is, if the current variable rate is 3%, they calculate serviceability at 6%. It is quite likely that over the last few weeks, they have increased this margin knowing that variable lending rates will increase shortly.
Question 2: What will happen now with Uniti (UWL) following the Board’s recommendation to accept an offer of $5.00 per share?
Answer: With a unanimous Board recommendation, this looks like a done deal. A consortium comprising The Morrison & Co Infrastructure Partnership, Commonwealth Superannuation Corporation and Brookfield Australia will acquire 100% of Uniti by way of a scheme of arrangement for a cash consideration of $5.00 per Uniti share less the value of any dividends declared. Shareholders will need to vote in favour at a meeting in June/July, and it is also subject to approval from the Foreign Investment Review Board.
Question 3: I bought Alumina (AWC shares) in 2019 at a price of $2.31. The price is lower now, should I sell it and buy another aluminium stock such as Capral (CAA)?
Answer: I am a former shareholder in Alumina (AWC) and got out some time back. The stock never seems to do much, and aluminium/alumina are tough commodities. If it is not power prices, it is some other input cost.
In the current environment with Ukraine, AWC should be doing a lot better, but the market is worried about higher input and transport costs. My inclination would be to sell – and not buy another aluminium stock.
The broking analysts are in the main favourable on AWC. A consensus target price of $2.23 compared to an ASX price of $1.92, and the range is a low of $1.90 through to a high of $2.60. Of the 5 major broking houses that cover the stock, according to FNArena, there are three ‘buy’ recommendations and two ‘neutral’ recommendations.
Question 4: Why did BOQ “bomb” today (down 5%) when it seems to have beaten the earnings forecast?
Answer: BOQ’s first-half profit of $268 million was up 14% on the corresponding period in FY21, and ahead of most forecasts. However, it included “negative loan impairment”, some “one-off” non-interest income, and a big deterioration in the net interest margin. Further, the performance of the recently acquired ME Bank was a touch disappointing. Overall, it delivered “positive jaws”, but income fell by 1 % and expenses dropped by 2%.
Overall, the market is probably being a bit tough. Their loan book grew by better than the system, and they have guided to positive jaws for the full year of 2%. It might now be a “buy”.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
