Short-selling positions in the big four Australian banks are back on the rise, Deutsche Bank says.

It follows a steady decline in short positions last year, after they reached a peak in May 2016.

“Reported short positions in the major banks have remained broadly unchanged over the past month, although they have increased substantially since January (from an average of 0.6% to 1.1%, of shares outstanding),” Deutsche Bank said.

The banks have come under increasing scrutiny in recent months, as they face a laundry list of regulatory inquiries in addition to the ongoing Royal Commission.

Earlier this year, analysts from Morgan Stanley highlighted five key challenges facing the sector.

Based on data from Commsec, the combined market capitalisation of the big four banks is around $380 billion, which means current short positions by dollar value amount to around $4.1 billion.

“Over a three-month period, all of the majors saw an increase in short positions, with an average increase of 41 basis points,” Deutsche Bank said.

“Currently, Westpac is the most shorted (at 1.7% of shares on issue), while NAB is the least shorted (at 0.6%),” Deutsche Bank said.

Despite the increase in short-selling at the start of this year, the May 2016 peak saw total short positions climb to more than 2% of the big four’s issued capital.

And compared to the broader market, short positions in the big four bank remain on the lower end of of the spectrum.

For example, the most shorted stock on the ASX is graphite miner Syrah Resources, which has short positions on around 20% of its issued shares.

But according to Deutsche Bank, the recent shift still marks a notable increase since the start of the year.

And while overall short positioning in March was flat, results varied across the sector.

“Among the majors, Westpac saw the largest increase in short positions (36 basis points) over the past month, followed by ANZ (26 basis points). CBA saw a reduction of 42 basis points and NAB was down 16 basis points,” Deustche Bank said.

Looking regionally, Bendigo & Adelaide Bank has consistently been the most shorted bank in Australia since May 2016. It currently has short positions on 6.6% of its shares outstanding, compared to 3.4% for the Bank of Queensland.

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