One of the biggest questions to come out of the Financial Services Royal Commission was what impact (if any) the inquiry would have on the major banks' lending levels.
As we've since seen, the banks' lending activities have been largely unaffected and credit has been flowing freely to Aussie property in the last 6 months or so.
But, what's the outlook like for 2020 and will the Big Four banks be cutting back on loans as we head into next year?
Why the Big Four banks' could increase lending
According to an article in the Australian Financial Review (AFR) today, Treasurer Josh Frydenberg is backing the banks despite a regulatory push to restrict the banks' lending activities.
The article says that Mr Frydenberg's speech in Sydney will make mention of the Australian Securities and Investments Commission's (ASIC's) efforts to enforce responsible lending laws and his view that they may be a little too restrictive in the current environment.
This latest commentary from Mr Frydenberg and Prime Minister Scott Morrison comes as they try to balance sustained economic growth with maintaining a healthy Federal budget surplus.
What might this mean for bank earnings?
Commonwealth Bank of Australia Ltd (ASX: CBA) is the only one of the Big Four banks to report its full-year earnings thus far with Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) all set to report in late October or early November.
We saw from Commonwealth Bank's results that lending growth has tightened marginally and margins have been compressed in the face of higher regulatory costs and a lower interest rate environment in 2019.
The CBA share price has rebounded strongly since the end of the Royal Commission in February, as have most of the Big Four share prices, but the next wave of earnings results will make for interesting watching.
It's hard to quantify the impact of the Federal Government's words on the Big Four banks, let alone when you consider the impact of likely rate cuts from the Reserve Bank of Australia (RBA) before the year is out.
Should you buy in the banking sector?
The ASX Financials sector hasn't been the strongest performer in 2019, bar Magellan Financial Group Ltd (ASX: MFG) but I still think Westpac shares could be good value at the current $50.87 valuation.
Westpac is the only one of the Big Four to hang onto its wealth management division despite the Royal Commission scrutiny and this could be a gamble that delivers long-term growth to shareholders, while it currently yields a tidy 6.29% per annum for income in the meantime.
