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In the face of intense competition in the mortgage market, Australian banks want to return billions to shareholders, sparking worries that buybacks are a response to surplus cash rather than helping investors.

Australia's banks are having trouble turning a profit because of the intense rivalry for new mortgage clients. As Matt Haupt, a portfolio manager at Wilson Asset Management International in Sydney put it, this "savage" competition has prompted banks to offer offers that lower their profit margins despite rising interest rates, Forbes reported

Banks are thus left with extra capital, which they are unable to deploy successfully given the state of the market. Notwithstanding higher interest rates, fierce competition for new mortgages has reduced their profitability, leaving them with A$4.5 billion in surplus capital set aside for stock buybacks (A$2 billion by ANZ, A$1.5 billion by NAB, and A$1 billion by Westpac).

This action follows a period when interest rates are rising, which may have increased earnings. Nevertheless, a recent decline in share prices throughout the industry tempers this confidence. After Macquarie, a well-known investment bank, downgraded all major banks, their prices fell. Concerns regarding inflated valuations and constrained potential for future growth were mentioned by Macquarie. This calls into question whether the buybacks will be sustainable in the long run.

Australian banks have come under fire for being unduly capital-conservative. Chief investment officer of Atlas Funds Management Hugh Dive believes that despite baseless worries, they are holding onto enormous reserves. The "mortgage cliff" of widespread loan defaults that was projected never happened, and more general economic forecasts of severe unemployment and a housing market meltdown turned out to be false. Regarding these predictions,

"It was an elegant thesis, but none of that's happened," he said, claiming that because of this economic stability, banks are not as much in need of a safety net and are passing up chances to invest and pay back cash to shareholders.