Analysts tip $11bn profits for banks in ‘messy’ accounting year

The major lenders are forecast to hand down full-year profits of around $11bn in the coming days.

Three of the nation’s big four banks are set to deliver results. Picture: AAP Image

The major lenders are forecast to hand down full-year profits of around $11bn in the coming days, with ANZ kicking off the bank earnings season off on Thursday followed by Westpac and NAB next week.

CBA posted its full-year result in August and is due to provide a quarterly trading update on November 12.

While the numbers are expected to be “messy” due to remediation charges, Westpac’s Austrac penalty and NAB’s sale of its MLC wealth business, analysts are also tipping a decline in bad debts from numbers reported in the first half.

UBS analyst Jonathan Mott warned this would be an unusual reporting season, with the banks operating in a false economy.

“Therefore, it is extremely difficult for the banks to gauge the quality of their books or provisioning,” he warned.

Mr Mott is tipping ANZ will report a $4.16bn cash profit for the year and expects its net interest margin to have ticked down a further 10 basis points in the second half, which would see it get to 1.58 per cent.

Over at JP Morgan, analysts see ANZ reporting the strongest underlying revenue performance of the majors, with 0.4 per cent growth half on half — versus flat revenue at NAB and -2 per cent at Westpac — due to a much stronger third quarter markets result.

JP Morgan also expects ANZ to slash impairment charges by 28 per cent but says impairments will “remain elevated” through the 2021 financial year.

“APRA data suggests ANZ’s deferral loan book is running off more slowly than peers, which we expect will raise some questions from analysts,” JP Morgan warned clients.

The broker is forecasting a final dividend of 35¢ per share for ANZ, 70 per cent franked.

Morgan Stanley is eyeing weak earnings from Westpac on November 2, with cash profit excluding notable items tipped to fall around 30 per cent from last year.

“The dividend is constrained by APRA’s payout ratio cap and below-peer capital, and the potential for a turnaround in operating performance will be in focus,” the bank’s analysts said in a note to clients.

“We forecast a fiscal 2020 (CET1) ratio of around 10.9 per cent, a final dividend of 25¢, cautious commentary on the outlook for revenue and expense, but more positive commentary on the level of provisioning, the outlook for capital and the prospect of asset sales,” they said.

Bell Potter analyst TS Lim is tipping Westpac’s cash earnings will come in at $3.17bn and expects cash earnings excluding notable items of $4.98bn.

“Westpac did not provide an outlook for net interest margin in the fourth quarter, but we expect this to remain soft by up to 2 basis points lower than in the third quarter given ongoing front to back book drag and asset price competition, and we forecast net interest margin of 2.03 per cent in the fourth quarter and 2.04 per cent in the second half,” Mr Lim said.

NAB hands down its full-year numbers on November 5 and Goldman Sachs is expecting cash earnings growth of -17 per cent for the half to $2.5bn, diluted cash earnings per share growth of 7 per cent to 79.5¢, and a 37¢ per share dividend.

“NAB’s business mix (overweight small and medium enterprise lending and relatively less funded from low-cost deposits) should continue to support its relative net interest margin performance versus peers,” the analysts told clients.

The market is underestimating the extent to which NAB’s small business book is collateralised, they said.

“We note that the large part of this security is property. We think this should provide a cushion to losses as NAB begins to work through its deferral book,” Goldman Sachs said.