The Australian banking sector's strong performance during the global financial crisis is unlikely to continue into the immediate future, according to a director of domestic equities at fund manager Alliance Bernstein Australia.
The reason is a number of the prevailing factors driving the sector's outperformance are on the verge of ending.
"The non-bank lenders suffered from higher funding costs and could not compete at all," Alliance Bernstein Australia director Australian growth equities Johan Carlberg said.
"We've had a better credit cycle due to the stimulus package and interest rates and most importantly interest rates have been cut aggressively, which helped the banks outperform relative to the rest of the market," he said.
In the past, as interest rates rose the banks underperformed and when rates were cut they had a strong rally relative to the market, Carlberg said.
"As we all know now we've had one interest rate increase," he said.
"How quickly that will go is debatable but I think everyone would agree that we are moving towards some normalisation of rates ... so we are on the path to higher interest rates and I think that will be a headwind rather than a tailwind for the sector."
Carlberg also highlighted the fact that the period of higher funding costs for the non-banks and the subsequent lack of competition allowed the banks to increase their margins, but with evidence competition was now returning to the sector the higher margins may no longer be sustainable.
"So we think the banks have done in the relative sense their best for those reasons," he said.
