Banks tipped to rake in $30b as most borrowers weather interest rate storm

Financially resilient borrowers who continued paying off their home loans despite soaring interest rates and cost-of-living pressures are expected to give three of the big four banks’ bottom lines a boost when the banks unveil their full-year results this week.

Investors and economists will be able to gauge the state of the nation’s economy in the 2024 financial year – as well as the health of the banking sector – when Westpac releases its results on Monday, followed by NAB on Thursday and ANZ on Friday.

Outgoing Westpac chief Peter King (left), ANZ boss Shayne Elliott and NAB chief Andrew Irvine will hand down their full-year results this week. Credit: Aresna Villanueva

The market expects the combined profits of the four major banks for 2024 will exceed $30 billion. Analysts say NAB, ANZ and Westpac will collectively rake in more than $20 billion in profits, down 8 per cent on last year’s records.

Commonwealth Bank reported a 2 per cent decline in cash earnings of $9.84 billion at its full-year results in August.

Although sticky inflation and two years of elevated interest rates have been eating away at household savings, which are well below the historic average, and the number of borrowers falling behind on their repayments has increased, most remain ahead of schedule. Analysts said the trend of low bad debt charges could support banks’ profits over the coming week.

“Some of the key themes likely to drive bank results could come from better than expected [net interest margin] outcomes, cost overruns and, most notably, lower than expected [bad and doubtful debt],” UBS analysts said in a research note.

Net interest margins, a key measure of profitability, compare funding costs with what lenders charge for loans. Bad and doubtful debts are debts that will not be paid or are unlikely to be paid.

The so-called mortgage wars – having amped up competition between the banks as the Reserve Bank of Australia started lifting the cash rate two years ago, ultimately squeezing the banks’ profit margins –have subsided over the past six to 12 months.

A research report from Citi notes consensus estimates of full-year profits of $6.95 billion for ANZ, $7.06 billion for NAB and $7.02 billion for Westpac. It reports net interest margins are anticipated to come in at 1.94 per cent for Westpac, 1.72 per cent for NAB and 1.56 per cent for ANZ, and it forecasts a decline in the three majors’ bad debt expenses, compared with 2023.

Citi said investors had been focused on bad debts over the 12 months due to cost-of-living pressures, but had been buoyed by what they have seen and had increasingly overlooked banks’ rising costs.

It said forecast costs for the major banks for the 2025 financial year had ballooned from $39 billion to $45 billion over the past couple of years.

“We think several lurking cost issues have the potential to cause a surprise,” Citi said.

“Underpinning the dynamic are a range of factors including regulatory and compliance spend, and technology spend. However, sprinkle in pending and completed management change, and several ‘do or die’ projects, and there are enough warning bells across the sector to be mindful of.”

ANZ’s operating costs are expected to climb because of its acquisition of Suncorp’s banking unit, the rollout of its digital platform ANZ Plus, and a bond trading scandal that is the subject of a regulatory investigation.

Citi also said Westpac’s attempts at merging its legacy platforms with St George’s would be costly over the next few years, and that new NAB chief executive Andrew Irvine had signalled a greater appetite for investment in technology.

Commonwealth Bank chief executive Matt Comyn in August unveiled a full-year profit of $9.84 billion.Credit: Oscar Colman

Its analysts said that while the 2018 banking royal commission had heralded a sharp rise in compliance costs for the banks, that had largely been offset by low inflation. However, since 2020, labour shortages, soaring inflation and increased spending on technology had significantly hit the banks’ bottom lines.

Macquarie analysts expect ANZ, NAB and Westpac to announce further buybacks of $500 million. Westpac is also expected to issue a special dividend of 10¢ per share.

Westpac’s results will be the last for chief executive Peter King, who will be replaced by Anthony Miller next month. ANZ’s results will include Suncorp’s bank, which merged with ANZ in July.

The RBA will meet on Monday and Tuesday, but economists do not think the bank will cut rates until February, even though headline annual inflation has fallen to 2.8 per cent, according to last week’s Australian Bureau of Statistics data.

The RBA’s preferred measure of underlying inflation, which excludes volatile items that show big increases or declines, fell to 3.5 per cent.

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