NAB, Westpac the worst as big bank payouts tumble, Macquarie warns

Macquarie has told investors to prepare for lean years of bank payouts, warning current dividend and buyback levels are ‘unsustainable’.

Macquarie has told investors to prepare for lean years of bank payouts, warning current dividend and buyback levels are “unsustainable” and describing NAB and Westpac as the worst positioned of the big four.

In a note to investors Macquarie warned bank earnings were likely to fall by5-15 per cent in the 2024 financial year.

Macquarie analysts said bank returns were looking increasingly uncertain in the coming years, but noted the big four were entering the looming slowdown with healthy capital ratios. The analysts noted bank returns may be maintained in the short term, but warned they would tumble unless lenders were able to maintain historically low impairment rates on loans.

Current bank capital buffers are tipped to support returns in the short term, with a 35-45 basis point capital uplift in the 2024-25 financial year likely to lead to “surplus capital”.

“However, we see it as just a matter of time before dividends will need to be cut,” Macquarie analysts said.

The analysts pointed to NAB and Westpac as the worst positioned of the big four banks. “While we see scope to utilise surplus capital in the near term for NAB and WBC, we continue to believe their payout ratios are not sustainable and expect a dividend cut in FY26,” they said.

“The key potential upside is from better than expected earnings growth, which may be supported by ongoing cyclically low impairment changes staying at current levels for longer than we expect.”

Despite the dire warnings, Macquarie slashed its expectations of dividend cuts from Westpac and NAB in the 2024-25 financial year.

Macquarie said banks would grapple with how to best hand back funds to investors in the coming year – either through dividends or buybacks.

CBA and Westpac were both tipped to offer higher dividends, given both banks had a substantial surplus franking balance.

Pengana Australian Equities Core Fund manager and principal Rhett Kessler said bank balance sheets were in “rude health”.

“What did Oscar Wilde say? Rumours of my death are greatly exaggerated. The rumours of bad debts in the home loan markets have been greatly exaggerated, but we always think it’s going to come at some stage,” he said. “The average customer of the banks is in a lot better nick.”

Pengana has positions in NAB, CBA and Macquarie.

Atlas Funds Management chief investment officer Hugh Dive said he was “more positive than that Macquarie note”.

“What investors look at is have my dividends gone up or down? That’s not likely to be under as much pressure,” he said.

Mr Dive said he was overweight on Macquarie and had a position in ANZ, Westpac and CBA but was steering clear of regional lenders including Bendigo and Adelaide Bank.