The effect on the Australian banks, which own all the main New Zealand banks, is expected to be mirrored here as belt-tightening hits all spheres of operations and consumers see fewer signs of real competition among the lenders.
The Australian banks - ANZ, National Australia Bank, Commonwealth, Westpac, St George, Bank of Queensland and the Bendigo and Adelaide Bank _ are facing a drop in corporate lending growth from about 25% to 5% as the cost of borrowing has increased 2%-3% during the past 12 months, the ABN Amro Craigs research shows.
ABN broker Peter McIntyre said "the banks have had it great for the past three to five years and enjoyed plenty of growth and good returns to shareholders, but now they are going to struggle.
"What happens to Australian banks, with the [higher] funding costs they face, will translate directly into New Zealand,'' he said.
As with the ANZ's announcement last week of hundreds of pending job redundancies through natural attrition, Mr McIntyre said all banks would be seeking cost savings through in-house operations, increasing the risk factor of their lending criteria and would not be entering into the mortgage ``price wars'' seen at the height of the housing boom two to three years ago.
"There will be some exceptions, but borrowers won't be seeing the same level of aggressive mortgage pricing,'' he said.
Because of the negative implications for future loan growth, ABN was downgrading the banks' earnings by 4%-9%, which will prompt the banks to focus not on gaining market share but on their bottomline returns.
Mr McIntyre said with the heightened risk of corporate failure - evidenced by the increasing number of global corporates swept up by the United States' subprime mortgage debacle and writeoffs - ABN believed the Australian banks would now operate under a tightened credit environment, with their focus on returns.
"History suggests that when interest rates begin to bite the banks' appetite for debt in the corporate sector slows rapidly,'' he said.
With lending costs up 2%-3%, banks were now closely monitoring whether they should undertake financing for ``marginal projects'', he said.
Of the seven banks, two are trading 5% above ABN's 12-month share price target, with the Commonwealth up at $A42.46 and St George Bank at $A24.76.
Trading below the target is the ANZ, down 1% at $A20.72; the National Australia Bank, down 12% at $A28.33; Westpac, down 10% at $A22.52; Bank of Queensland, down 8% at $A15.63; and the Bendigo and Adelaide Bank, down 6% at $A11.74.
Mr McIntyre's's financial disclosure document is available on request.
