{"id":43652,"date":"2023-11-05T18:39:02","date_gmt":"2023-11-05T18:39:02","guid":{"rendered":"https:\/\/cabanesetcompagnie.com\/?p=43652"},"modified":"2023-11-05T18:39:02","modified_gmt":"2023-11-05T18:39:02","slug":"bank-margins-in-focus-as-big-fours-profits-tipped-to-hit-33b","status":"publish","type":"post","link":"https:\/\/cabanesetcompagnie.com\/markets\/bank-margins-in-focus-as-big-fours-profits-tipped-to-hit-33b\/","title":{"rendered":"Bank margins in focus as big four\u2019s profits tipped to hit $33b"},"content":{"rendered":"

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Three of the four big banks will be in the spotlight over the next week as they unveil their full-year results, with investors keen to gauge the state the country\u2019s financial behemoths.<\/p>\n

Kicking off with Westpac on Monday, and followed by NAB and ANZ on November 9 and 13 respectively, the results will shed light on the performance of the banks, but also the health of the broader economy amid stubborn inflation and elevated interest rates.<\/p>\n

<\/p>\n

Three of the four big banks will report their second half results in the next week amid increasing cost pressures and elevated interest rates.<\/span>Credit: <\/span>Karl Hilzinger<\/cite><\/p>\n

While investors expect profit margins to come under pressure, analysts are also tipping the big four\u2019s full-year combined earnings to approach a record $33 billion, after Commonwealth Bank notched up $10.2 billion in profit at its full-year results in August.<\/p>\n

Goldman Sachs co-head of Australian equity research Andrew Lyons said margins across the major banks would probably drop by about 6 basis points in the second half as they faced higher funding costs and competition.<\/p>\n

\u201cHigher cash rates should generally be good for retail banks, however, to date, this benefit has been muted by the intense competition across the sector in both asset, and, more recently, deposit pricing,\u201d he said.<\/p>\n

A research note from Lyons reported consensus estimates of $7.4 billion in full-year cash profit for Westpac, $7.8 billion for NAB, and $7.6 billion for ANZ.<\/p>\n

\u2018Expect higher wholesale funding costs as central banks try to shrink their balance sheets.\u2019<\/p>\n

Despite the high headline numbers, analysts are debating whether this is peak profit for the banks. Jefferies equity analyst Matthew Wilson said the banks\u2019 core profits would probably shrink after three halves of margin-led growth.<\/p>\n

The banks\u2019 net interest margins, which compare funding costs with what lenders charge for loans, will be squeezed on both sides of the balance sheet, Wilson said. \u201cExpect higher wholesale funding costs as central banks try to shrink their balance sheets,\u201d he warned, adding depositors would also be seeking higher yields.<\/p>\n

Wilson also said some banks, such as Westpac, may have especially sacrificed their margins to regain market share in lending areas such as home loans.<\/p>\n

Goldman Sachs\u2019 Lyons said he saw a notable slowdown in credit growth across the banks this year and that it was likely to continue.<\/p>\n

\u201cWe currently expect one more cash rate rise which, in conjunction with the challenging macro backdrop, should drive housing credit growth down even further,\u201d he said.<\/p>\n

Lyons said he expected business lending to soften to 4 per cent over the next year, and housing loan growth to trough at 4 per cent in December.<\/p>\n

JP Morgan lead Australian banks analyst Andrew Triggs said mortgage competition and deterioration in the deposit spread \u2013 the difference between lending and deposit rates \u2014 weighed on banks\u2019 margins but that he expected these factors to moderate over the next six months.<\/p>\n

\u201cThis should contribute to an improvement in revenue growth,\u201d he said, but noted the 2024 financial year outlook still looked relatively subdued.<\/p>\n

Notwithstanding the challenges faced by the banks, all three analysts said the major banks would probably register substantial tier one common equity \u2013 that is, capital held as a precaution to protect them in the event of a financial crisis.<\/p>\n

Triggs and Wilson said in light of the surplus capital, Westpac could pursue a share buyback, but Lyons said the bank was more likely to favour a larger franchise investment over a buyback.<\/p>\n

The analysts said CBA and NAB were unlikely to announce additional buybacks, and that ANZ would likely wait for a final decision on its proposed Suncorp Bank acquisition before pursuing a buyback.<\/p>\n

Higher costs and creeping bad debts could also feature in the banks\u2019 results this week.<\/p>\n

Lyons said he expected bad and doubtful debt charges \u2013 an estimate of a percentage of loans that will not be repaid \u2013 to increase modestly from 9 basis points to 13 basis points, and for bank expense growth to step up to 5 per cent a year until the 2025 financial year.<\/p>\n

\u201cBanks are increasingly worried about the impact of renegotiating their third-party costs, where post-COVID inflation has been significant,\u201d he said.<\/p>\n

\u201cRising cash rates have the potential to drive higher losses on the banks\u2019 housing portfolios,\u201d he said, but noted borrowing was skewed to higher income cohorts with higher savings, and that stress testing suggested loss ratios should remain contained.<\/p>\n

While buffers including higher immigration, low unemployment and residual savings are slowing the emergence of a credit cycle, Wilson warned higher interest rates and sticky inflation would eventually take its toll on Australian households, as bad debts emerged with a lag.<\/p>\n

\u201cLooking back to the last classical Australian credit cycle in 1992, we note that whilst interest rates peaked at 18 per cent in December 1989, it took bad debts another 21 months to peak in September 1992,\u201d he said. \u201cBanks are typically impacted late in a business cycle, and it\u2019s still early days. Don\u2019t dream it\u2019s over, it may only be the beginning.\u201d<\/p>\n

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Save articles for later Add articles to your saved list and come back to them any time. Three of the four big banks will be in the spotlight over the next week as they unveil their full-year results, with investors keen to gauge the state the country\u2019s financial behemoths. Kicking off with Westpac on Monday, and followed by NAB and […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"yoast_head":"\nBank margins in focus as big four\u2019s profits tipped to hit $33b - cabanesetcompagnie<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/cabanesetcompagnie.com\/markets\/bank-margins-in-focus-as-big-fours-profits-tipped-to-hit-33b\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bank margins in focus as big four\u2019s profits tipped to hit $33b - cabanesetcompagnie\" \/>\n<meta property=\"og:description\" content=\"Save articles for later Add articles to your saved list and come back to them any time. 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