Australia’s major banks’ shocking $14.4b profits revealed amid interest rate hike

As homeowners prepare to tighten their belts after being hit with a painful interest rate hike, our “big four” banks are enjoying staggering profits.

Australia’s “big four” banks have raked in bumper profits off the back of the nation’s housing crisis, as homeowners brace for months of interest rate pain ahead.

According to an EY analysis of the 2022 half year results of Australia’s major banks, Westpac, NAB, ANZ and CBA pulled in a combined $14.4 billion in headline cash earnings – up a staggering $700 million from last year’s results, representing a 5.1 per cent jump.

The big four also share a massive $1.87 trillion slice of Aussie home loans, with loans growing by $43.9 billion in the year to March 2022.

EY reported an increased level of high debt-to-income lending, noting that borrowers in this category were at “higher risk of mortgage default” – but said household balance sheets were “generally in good shape”.

“While margin compression is likely to continue in the short term, the rising interest rate cycle should ease net interest margins (NIM) pressures and lead to improved profitability for the banks over the medium term,” Tim Dring, EY Region Banking and Capital Markets Leader, Oceania said.

The big four share a massive $1.87 trillion slice of Aussie home loans. Picture: iStock

“However, ongoing economic risks point to continued uncertainty for the banking sector’s outlook.

“Last week’s higher than expected rise in the official cash rate by the RBA, and future expected rises, offer top line revenue growth opportunities and earnings upside.

“On the flip side though, rate rises coupled with strong inflation could also put pressure on asset quality and slow credit growth, and continued mortgage competition may also reduce margin upside for the banks. In the current economic environment, the only real certainty for the sector is uncertainty.”

The news of the big four’s bumper profits comes just days after Australians were hit by a historic interest rate rise – the first in 11 long years – by the Reserve Bank in a desperate bid to clamp down on inflation, which has reached an annual rate of 5.1 per cent and has sent prices climbing at the fastest rate in two decades.

The rate rise was more aggressive than experts had predicted, with the RBA announcing a rise of 25 basis points, taking the official cash rate from 0.1 per cent to 0.35 per cent.

Within hours, all major banks announced they would be changing their rate policies accordingly.

But Aussies are now preparing for plenty more pain ahead, with RBA boss Philip Lowe giving an ominous hint at things to come last Tuesday.

“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead,” he said in the wake of the rate rise.

The big four banks have recorded amazing profits.

“The Board will continue to closely monitor the incoming information and evolving balance of risks as it determines the timing and extent of future interest rate increases.”

Meanwhile, according to EY, return on equity across the big four banks also increased by an average of 20 basis points from the 2021 half year, to 10.6 per cent, while average net interest margins decreased 14 basis points from a year prior, to 1.75 per cent.

Credit impairment charges decreased 100 per cent from the 2021 half year, to a write-back of $220 million.

“The half year results show the banks have continued to execute well on their expense management initiatives, although costs remain elevated due to ongoing compliance, regulatory and technology programs, with the need for additional resources to meet loan demand and to address cybersecurity and financial crime risks,” Mr Dring said.

“Looking ahead, economic pressures point to continued uncertainty for the banking sector, despite the expectation of a rising cash rate that should help ease the pressure on margins and boost the banks’ profitability.

“This highlights that banks cannot afford to take their foot off the accelerator when it comes to their strategic cost management and operations transformation.”

Originally published as Australia’s major banks’ shocking $14.4b profits revealed amid interest rate hike