It’s ‘as good as it gets’ for the big banks, says Macquarie

Banks are expected to deliver a ‘largely uneventful’ results season, starting with National Australia Bank on Thursday.

Australia’s banks are expected to deliver a ‘largely uneventful’ results season.

Banks are expected to deliver a “largely uneventful” results season, starting with National Australia Bank on Thursday, with Macquarie analysts tipping no big surprises as lenders enjoy an economic environment that is “as good as it gets”.

In a note to investors, Macquarie said investor consensus on the banks had incorporated all the headwinds in the economy, with short-term risks “skewed to the upside”.

Macquarie said it was likely the banks would deliver a “headline earnings beat” due to lower bad and doubtful debts in the looming reporting cycle.

This comes after banks booked hefty provisions in recent reporting cycles in preparation for a deterioration of the lending market, which many market watchers say is yet to ­arrive. But Macquarie said banks faced a medium-term challenge, cautioning investors to remain underweight on the sector.

“With delayed rate cut expectations, near-term margin risk diminishes, while credit quality remains supportive, underpinned by favourable economic drivers and a low unemployment rate,” Macquarie’s note said.

“On a medium-term view, we continue to see earnings headwinds when the rate cycle ultimately turns and credit quality potentially deteriorates.”

Macquarie said NAB, which reports its half-year results on Thursday, was likely to deliver results in line with expectations.

Macquarie noted NAB was enjoying the smaller benefit from rising interest rates, but said this would protect the bank’s margins if rates remained stable or declined.

But analysts said NAB was unlikely to boost its buybacks, and the bank’s management “should preserve capital to sustain its elevated dividend”.

Westpac is expected to see a short-term upside due to a tailwind on its loans portfolio, but Macquarie said the bank was facing higher costs and revenues below market. Macquarie said this would mean Westpac would deliver profits 3-5 per cent below consensus.

ANZ is expected to deliver profits 1 per cent below expectations, but Macquarie said the bank may enjoy a benefit from higher trading revenues and lower impairments. This comes after ANZ booked a $150m release of restructuring expenses. Macquarie’s analysts said ANZ was likely to announce a $1bn-$1.5bn buyback at its results after its divestments of ­Malaysian lender AmBank in March.

Commonwealth Bank, which will publish a quarterly earnings update, is seen as most at risk of a sharemarket correction from investors. Macquarie analysts said the bank’s high share price left more room to fall.

A Morgan Stanley note on Tuesday revealed Westpac was the best performing major bank for its mortgage book, which grew at 6 per cent in March.

This was compared to ANZ, which saw its book lift by 5 per cent, outstripping CBA at 4 per cent and NAB at 3.5 per cent.

Macquarie noted ANZ’s mortgage book growth had slowed over the last three to 12 months, while CBA had boosted its home lending business.

Westpac shares have been the best performing of the big four banks this year, up almost 13 per cent, followed by NAB (up more than 10 per cent), ANZ (up just over 8 per cent) and CBA (up almost 2 per cent).