Bank shares fall as property ‘bell rings’

One regional lender’s decision to change accounting procedures for its home equity release product has been interpreted by some as further evidence the Sydney and Melbourne property markets have peaked, adding to the continued selloff in banking stocks.

Shares in all four big four commercial banks fell more than one per cent on Tuesday, compounding similar losses on Monday after Bendigo and Adelaide Bank said cash earnings would no longer include unrealised gains or losses from property stakes acquired via its Homesafe joint venture.

Morningstar analyst Ravi Reddy said Bendigo had made the right decision and cash earnings would now better represent sustainable underlying earnings.

UBS analysts concurred but noted the move could put pressure on Bendigo’s dividend and, more broadly, be a sign the lender has “rung the bell” on the end of the property price boom in Sydney and Melbourne.

“While we believe this accounting change is appropriate, the timing is unusual,” UBS analysts Jon Mott and Rachel Bentvelzen wrote in a note.

“It is only now as Sydney and Melbourne house prices are in bubble territory and house prices have begun to slip in recent weeks that Bendigo and Adelaide has changed its policy.”

Data from property market analytics firm CoreLogic this week showed that Sydney and Melbourne property prices have declined 1.0 and 1.9 per cent over the past month, suggesting that the turbocharged growth of the past few years is over.

The impact of the regulator’s handbrake on interest-only lending should become clearer on Friday when the Australian Bureau of Statistics releases its monthly housing finance data for April.

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Economists expect a fall in home loan approvals of 1.0 per cent, which would follow a 0.5 per cent decline in March.

With the majors following Bendigo into the red, the S&P/ASX200 banking index has now fallen more than 12 per cent in the past six weeks on worries including declining house prices, slowing credit growth and the federal government’s bank levy.

Bendigo shares fell three per cent on Tuesday, with Commonwealth Bank, Westpac, National Australia Bank and ANZ all down by between 1.4 and 1.7 per cent.

Shares in CBA have fallen more than 10 per cent since the end of April, while Westpac shares are at $29.55, at their lowest value since September.

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