Bumper profits predicted as big four banks report earnings

The major lenders are tipped to have more doubled their cash earnings in the first half of 2021.

Three of the big four banks will hand down their half-year results this week. Picture: AAP

The major lenders are tipped to have more doubled their cash earnings in the first half of 2021, with three of the big four banks expected to unveil profits of more than $3bn in the coming days.

Westpac kicks off bank earnings season on Monday, followed by ANZ on Wednesday and NAB a day later. CBA will follow with a third-quarter trading update later in the month.

The market is expecting strong numbers amid a swift economic recovery from the nation’s first recession in three decades.

Among the key areas of focus for investors will be a return to higher dividends, updates on margins and bad and doubtful debts, and the outlook for the booming housing market.

Macquarie is tipping cash earnings of $3.34bn for Westpac, more than triple the interim profit it handed down a year ago.

Westpac last week flagged that $282m in significant items would be included in its half-year result. These include extra provisions for customer refunds and litigation, the bank told the market.

Of the notable items, $212m was announced in the first-quarter market update, with the remainder accrued in the second quarter.

Like others, Macquarie is ­bullish on the sector, as it sees upside risk to consensus expectations from further declines in bad and doubtful debt charges, as well as an improving dividend outlook.

“The unprecedented nature of this crisis relates to numerous things, including banks’ provisioning,” the analysts said in an earnings preview note.

“While in the previous cycle, it took five years for bank charges to go from peak to trough, it appears that this time the same journey will take less than six months.”

The broker is watching for higher dividends in the bank results.

“We expect all banks to lift their dividends in fiscal 2021 and fiscal 2022,” they said.

“Based on our current expectations, banks offer dividend yields of around 4 to 5 per cent. We see further scope for dividend growth, which is likely to capture investors’ attention searching for yield in the low-rate environment.”

ANZ on Friday said it would take an $817m hit to its half-year cash profit on the back of notable items, such as a $251m goodwill writedown related to its share trading operation E-Trade, $108m for customer remediation charges, and a $135m writedown in the carrying value of its investment in Malaysian lender AmBank.

Before its update, Goldman Sachs analysts were expecting the lender to report a half-year cash profit of $3.07bn, more than double the $1.41bn it posted a year ago.

The analysts are forecasting a net interest margin of 1.62 per cent for ANZ, up five basis points compared to the prior half. Net interest margin drivers will be of particular focus at the result, they said.

With NAB rounding out the bank results for the half on Thursday, Morgan Stanley is tipping it will post a cash profit of $3.17bn, more than double its interim profit for 2020. The broker sees bank boards taking a prudent approach to capital, meaning buybacks are unlikely and payout ratios will remain below 65 per cent.

“But interim dividends should recover to 60c at ANZ, 60c at NAB and 55c at Westpac,” the analysts told clients.

As the economic recovery has gathered pace, investors have piled into the banks amid the prospect of higher dividends. While the easy money has now been made, Macquarie analysts see further room for earnings upgrades, which they say should provide share price support for the sector in the near term.

“We believe it is too early to go underweight the sector and maintain our neutral view.

“In our view, ANZ continues to offer biggest valuation upside, while NAB has the biggest earnings upside from lower bad and doubtful debts,” the analysts told clients.