The Reserve Bank lifted the cash rate by 25 basis points this week, the third hike for 2026. Switzer Report’s Paul Rickard called it early, and flagged that the major banks themselves had already begun preparing for what comes next.
Watch the interview:
Speaking on the new-look Switzer TV on Monday night, Switzer Report co-founder (and founding MD of CommSec) Paul Rickard said the hike was effectively a done deal.
“I don’t think they’ve got the courage to stand up to the market,” he said. “The market says rates are going up, so I expect rates to go up. The market’s then going to think about what happens next. Is that the last of the increases for 2026? I think we’re going to get more speculation about another increase next time we get a CPI number.”
For investors in the big four, that uncertainty is the issue. Rickard’s case is that bank shareholders should not celebrate today’s decision.
“The banks in the short term benefit a little bit when interest rates go up because very simply they can pass on the rate to the borrowers pretty quickly. But some of the deposits don’t refinance. They don’t increase the interest rate on the deposits. So there’s a whole lot of what we call zero percent interest deposits where the banks just don’t pay any money and those things don’t get repriced. And so the margin increases. In the long term, though, of course, the higher interest rates go, the more impact it has on things like bad debts because borrowers start to struggle. So short term positive, long term it’s a negative.”
With three hikes now in the system, plus the petrol price spike from the Iran conflict acting as a fourth round of de facto tightening, the bad debt cycle is the next thing to watch. The major banks themselves appear to be watching it already.
NAB reported its results this week. Rickard’s read of the number was that the bank, alongside its peers, has already shifted into defensive mode.
“All the banks have suddenly got a little more wary about their bad debts. We’ve had both ANZ and National Australia Bank and also Westpac start to increase some of their forward looking provisions. NAB is effectively raising capital — for its next dividend of eighty three cents, it won’t be repurchasing those shares in the market. So its share base will increase and they’re effectively raising capital. So the banks are being a lot more conservative.”
His view is that this is not the banks acting alone. APRA’s hand is visible in the picture.
“It’s almost like they’ve had a tap from the regulator saying, ‘just be careful’. You know, everyone’s talking about higher inflation. If we really went into a scenario where it became a little bit recessionary, maybe potential business failures, then just be careful. So they’re like squirrels. They are getting a little bit squirrel-like.”
For shareholders, Rickard’s read on the sector itself is that it remains fully valued at current levels and that the institutional money is already moving out.
“The banks to me are pretty fully valued still. People are moving out a little bit out of the sector. These institutions are being a bit careful because they’ve got very badly burnt on this very early on. A lot of us thought Commonwealth Bank got very expensive too early. And it kept on going up and up and hit one hundred and ninety dollars. Now we’re sort of back to the low one hundred and seventies. So a lot of institutions, fund managers got burnt in that strategy. That’s one of the reasons the resources sector is doing so well — we are seeing money come out of banks, or at least the institutional market not wanting to be too weighty in banks and looking for things like resources to buy.”
The implication for retail bank shareholders is likely an uncomfortable one. The professional investors who run the country’s largest funds have already adjusted their positions. The banks themselves look to be raising provisions. The question now is whether retail shareholders, many of whom hold the big four for the dividend, follow them out.
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