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Earnings Season For Australian Banking Majors
Three of Australia’s Banking majors will be reporting their first half results over the next few days, with analysts expecting Australia’s largest bank by market capitalisation, Westpac Banking Corp, to outperform its 3 other rivals.
CBA reported its first half results back in February whilst, NAB reported its first half result on Tuesday and saw a 9.4 per cent drop in first half cash profit as a result of rising bad debt provisions. NAB who kicked off this week’s banks earnings season by delivering its first half result Tuesday saw its cash profits tumble to $2 billion.
The fall was in line with analyst expectations, many of whom predict a similar outcome for ANZ who is set to report on Wednesday.
Westpac is expected to announce the strongest set of results amongst the big four as the integration of its recent acquisition St. George results delivers strong profits growth to the banking group’s bottom line.
Westpac said back in February that while operating conditions were challenging, its underlying performance remained solid.
Market consensus for ANZ’s cash earnings, a key measure of bank profitability, was a reduction of 27.6 per cent with banking analysts predicting ANZ’s cash earnings dropping to $1.21 billion.
Westpac is set to report on Friday and the market believes that its cash earnings are set to rocket by 25.2 per cent and increase to $2.30 billion after consensus estimates from Credit Suisse, UBS and Bank of America- Merrill Lynch and Citigroup all forecast a tripling in margins for the Australian banking group.
Most market commentators believe that the widening spreads between funding and loans which has resulted from the interest rate easing policy the Reserve bank of Australia has adopted will produce strong revenue momentum.
The banks have boosted margins by re-pricing their loan and deposit books after not passing on the full amount of recent interest rate cuts.
UBS an international investment bank and market leader in Australia reckons that gains in loan and deposit volumes, wider margins, and stronger revenue growth from proprietary trading services, have resulted in an increase of at least 10 basis points to the margins over the last six months for the big four lenders.
Westpac has turbo-charged its earnings courtesy of a tripling in margins to 19 basis points, while the repricing of ANZ’s corporate loan book has doubled its margins to seven basis points, UBS said. However, ANZ is expected to suffer from big losses from its exposure to $US10.9 billion ($A16.86 billion) worth of credit intermediation trades with US monoline insurers.
Bad debt charges for all the big banks are expected to rise to an average of 66 basis points to total loans, as the bad debt cycle progresses from big name corporate failures to small-to medium size enterprises.
But the big question is whether the previously flagged upgrades to bad debt provisions by the banks will continue to offset rising bad debts
NAB in its earnings announcement saw a more than doubling of bad and doubtful debt which increased to $1.8 billion from $700 million. The charge was largely as a result of consumer delinquencies and the trend is expected to continue upwards as unemployment increases.
New Zealand in particular has caused headaches for all the banks and in particular for ANZ which has doubled its full year provisions from that country to $450 million.
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