Brendan Burgess
Founder
- Messages
- 52,089
I was forwarded a note by Goodbody Stockbrokers which I thought was interesting - I had not seen the analysis before.
Our prior research shows that the average funding cost for the banking sector is 40bps (including cashback cost), the average Opex is 105bps, the average impairment charge equates to 20bps and the capital charge is 50bps. This leaves a profit market of 47bps, equivalent to ROEs of <20%, similar to peers in Europe. As such, the key delta going forward we think will be opex (banks have cost save programmes in place) and the capital charge as new lending on lower RWAs and underwritten under the macro prudential rules replaces legacy loans with higher RWAs. On the latter, c.33% of mortgages have been underwritten under the macroprudential rules and is expected to climb to c.50% by end 2023 and then c.65% by end 2025. This could see rates drift down but ROEs remain unchanged.
Eamonn Hughes
Financials Analyst
This is my table from the above:
Brendan
Our prior research shows that the average funding cost for the banking sector is 40bps (including cashback cost), the average Opex is 105bps, the average impairment charge equates to 20bps and the capital charge is 50bps. This leaves a profit market of 47bps, equivalent to ROEs of <20%, similar to peers in Europe. As such, the key delta going forward we think will be opex (banks have cost save programmes in place) and the capital charge as new lending on lower RWAs and underwritten under the macro prudential rules replaces legacy loans with higher RWAs. On the latter, c.33% of mortgages have been underwritten under the macroprudential rules and is expected to climb to c.50% by end 2023 and then c.65% by end 2025. This could see rates drift down but ROEs remain unchanged.
Eamonn Hughes
Financials Analyst
This is my table from the above:
Brendan