Banking giants to pocket $30b in profit as lending ramps up

5 hours ago 4

Australia’s biggest banks are expected to rake in about $30 billion in profits this financial year, helped by surprisingly strong loan growth, cost-cutting and low numbers of borrowers struggling to repay their debts.

Westpac will on Monday kick off a round of full-year bank results, which will be closely watched by investors after bank shares have climbed sharply this year, thanks to favourable economic conditions.

National Australia Bank and Macquarie Group will deliver their numbers in the same week, while results from ANZ Bank and a Commonwealth Bank quarterly update the following week will round out the profit reports from one of the biggest sectors on the local sharemarket.

The big four’s combined profits are expected to be about $30 billion this year.

The numbers come as investors grapple with the long-running debate over the valuation of Australia’s banks, after a rally in bank shares this year. While CBA’s meteoric share price rise was the big story for bank investors earlier this year, over the past six months the other big four banks – NAB, Westpac and ANZ – have all outperformed CBA.

ANZ shares have surged 23 per cent in six months as investors warm to chief executive Nuno Matos’ planned overhaul of the bank, Westpac is up almost 18 per cent in that time, while NAB is up 21 per cent. CBA is up 3.6 per cent in six months, after retreating from its record highs of June.

Barrenjoey analyst Jonathan Mott said the market had upgraded its earnings per share outlook for banks in the past six months, as banks were making more revenue thanks to solid credit growth, a bounce in margins, higher fees, and a strong performance from their financial markets divisions.

“The Australian banks have been enjoying one of the strongest revenue environments for some time,” Mott said.

Mott said the rally in bank shares over the past six months made it “hard to be bullish” on banks. “However, banks have taken the markets’ mantle of ‘expensive defensive’ stocks, which may keep valuations stretched while the global equities rally continues,” Mott added.

Opal Capital chief investment officer Omkar Joshi said banks had benefited from low numbers of customers in financial stress and solid credit growth, while the sectors’ profit margins had also proven resilient. “They are kind of boring right now, which is exactly how you want them,” Joshi said.

A key point of interest is likely to be banks’ net interest margins, which compare the cost of funds with what banks charge for loans. Despite competition in home lending from the likes of Macquarie Group, Joshi said the major banks had generally managed to stabilise margins recently.

“They have enough ability to manage margins both on the lending side, and on the deposit side. It’s a pretty rational mortgage market as well,” he said.

Citi analyst Thomas Strong said banks were in an “almost Goldilocks-type revenue environment”, as credit growth had been much stronger than expected, while he also noted the sector’s focus on cost control. He said the “wildcard” was likely to be bad debts, which have remained at historically low levels, benefiting the banks’ bottom lines.

Westpac is expected to deliver cash earnings of $6.8 billion on Monday, which is down slightly compared with last year, according to market analysts’ estimates.

Meanwhile, NAB is expected to make $7.1 billion, which is virtually flat compared with 2024.

Analysts expect ANZ will chalk up about $6.3 billion from continuing operations for the year, though other measures of profit that include “significant items” will be lower than this. On Friday, ANZ said its cash and statutory profit would take an after-tax hit of $1.1 billion from previously announced redundancies, a $240 million penalty to settle four regulatory lawsuits and the shutting down of the online shopping rewards platform Cashrewards.

CBA, which reports its numbers over a financial year ending on June 30, said in August that its full-year profits rose 4 per cent to $10.25 billion compared with last year.

All up, the major banks are expected to deliver cash profits of slightly more than $30.6 billion, according to consensus figures cited by UBS. That is similar to the $30.7 billion the big four made last year.