On the regional banking front, Deutsche Bank noted this week that in reality liquidity has only marginally improved for Australian banks in general. The analysts' assessment suggests their estimation of a 20 basis point increase in funding is ringing true. This will impact the big banks' earnings by a manageable two to three per cent, but the smaller banks will suffer more. Deutsche suggests earnings declines of five per cent for St George, six per cent for Bendigo, 13 per cent for Bank of Queensland and 25 per cent for Adelaide Bank are possible.
The analysts further suggest bank capital requirements will increase, and again the regionals will suffer as they had previously relied on securitisation funding. The free lunch is over, they say. Deutsche rates the banking sector Underweight.
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