Banks expected to report more than $15b in half-year profits
By Millie Muroi
Three of the four major Australian banks will collectively report net profits of more than $10 billion for the six months to March, according to analysts, even as the banks face continued pressures on their profit margins.
In early May, NAB, Westpac and ANZ will announce their half-yearly earnings, and CBA will issue a quarterly update, with continued movement by customers into higher-interest deposit products likely to weigh on the banks’ profits.
The big four banks are expected to report lower margins in the upcoming half-year results.Credit: Dominic Lorrimer
Jarden chief economist Carlos Cacho said the banks’ results would likely show a “resilient but muted” half, with the sector’s profits expected to fall 1 per cent to $15.6 billion.
Cacho said he expected a continued fall in the banks’ net interest margins – a measure of profit comparing banks’ funding costs with what they charge for loans – but at a slower pace, dropping 3 basis points over the half.
While mortgage competition – and especially discounts to retain customers – remain robust, he said competitive pressures were easing and that deposit pricing remained mostly unchanged.
Meanwhile, bad debts would remain relatively stable, Cacho said, against a backdrop of low unemployment and rising house prices.
‘The competitive behaviour is not as extreme now in mortgages, but there’s some competition on deposits.’
John Storey, UBS analyst
NAB will kick off the round of bank results when it reports its profits for the six months to March this Thursday.
Barrenjoey bank analyst Jon Mott said the banks’ revenues stabilised in the first quarter of this year, with that trend likely to continue through their first halves, following a set of disappointing results in the final six months of 2023.
“Many of the net interest margin headwinds the banks have been facing are easing,” he said, with pricing of new home loans increasing over the half, and strong markets performance.
However, the pressure is not completely off. Underlying costs are increasing for the banks, and while deposit pricing was stable, Mott said the deposit mix – the types of deposits customers are choosing – remained an issue for the banks.
Mott expects the banks’ net interest margins to shrink by 2 to 3 basis points.
Late payments are also expected to worsen, Mott said, but credit impairment charges – where banks write off bad loans – might come in lower than expected because of strong house prices, as was the case for Bank of Queensland when it reported its results this month.
However, with bank returns under structural pressure, Mott said share prices in the banking sector could be in for a fall following a rally since October.
UBS analyst John Storey said the trends looked relatively negative for banks’ cash earnings, with deposit costs in particular set to weigh on margins.
“The competitive behaviour is not as extreme now in mortgages, but there’s some competition on deposits, and we’re still seeing deposit-mix changes coming through, with customers moving from savings accounts towards [higher-cost] term deposits,” he said.
However, Storey said there was no data to raise alarm bells in terms of delinquencies or arrears.
“It’s not much different to pre-COVID,” he said. “Interest rates have been at these kinds of levels for quite a few months and consumers have slowly adjusted to rolling off their fixed rates. We also have relatively full employment, strong immigration and robust property values.”
Storey said the banks’ dividend payments were likely to remain relatively robust because of their strong capital positions.
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