Westpac, NAB weathering the storm in uncertain environment
The market will scrutinise NAB’s and Westpac’s cost targets as the banks reveal their annual profit this week.
The market will scrutinise NAB’s and Westpac’s cost targets as the banks reveal their annual profit this week, with the latter facing calls to rein in spending to support its recent share price run.
Westpac is due to hand down its full-year results on Monday, and NAB on Wednesday, amid a shift in a faltering economy brought on by a run of interest rate rises and broadbased inflationary pressures.
Morgan Stanley analysts Richard Wiles and Andrei Stadnik said Westpac was likely to beat consensus forecasts but would probably keep payouts flat amid an uncertain environment.
They said the bank was likely to deliver a pre-provision profit of $5.3bn, which would likely translate into a cash profit of $3.42bn – above consensus at $3.34bn.
Among analysts surveyed by Bloomberg, the consensus forecast for cash earnings was $5.25bn.
Mr Wiles and Mr Stadnik said they expected Westpac to benefit from higher rates and deposit pricing, more than offsetting headwinds in home loans and treasury and markets.
However, the analysts warned that Westpac must deliver on its cost savings to maintain its performance.
They expect NAB to hand in “another clean result” when it reports on Wednesday, tipping the bank to deliver an expected $5.44bn pre-provision profit.
Mr Wiles and Mr Stadnik said this would translate to a cash profit of around $3.71bn, against the $3.63bn consensus target forecast by Bloomberg analysts. The analysts said they expected market focus to land on NAB’s “pace of margin expansion, loan and deposit growth trends, the outlook for expense growth and balance sheet settings”.
NAB’s latest set of results will also show the impact of the bank’s acquisition of Citigroup’s Australian consumer lending business, which the bank locked in on June 1.
Morgan Stanley said the higher rates of interest flowing through across the home lending book, which are not being matched in savings rates, will more than offset any lending headwinds and costs in markets and treasury.
Mr Wiles and Mr Stadnik said this would see the bank’s margin climb 6 basis points to 1.69 per cent, hitting the consensus target.
“The outlook for the first half of the 2023 financial year should be positive, but we’ll be watching for differences versus peers in the size of mortgage headwinds, deposits tailwinds and mix impacts,” they said.
The two added that recent data from the prudential regulator showed NAB’s home loan growth “slowed meaningfully” to about 3 per cent in the September quarter calling on the bank’s management to “comment on the reasons” and what it was planning to do in the new year.
A recent note from Macquarie said that while banks had benefited from the run-up in lending rates, the spread with low deposit rates was starting to moderate in a move that would be felt in upcoming results.
Macquarie said NAB and CBA were best placed major banks to weather the earnings cycle, with Bendigo and Adelaide the best prepared regional lenders.
Macquarie noted NAB was the only major growing its deposit book above system, while ANZ was lagging the pack.
The analysts also noted there was a noted increase in borrowers refinancing, “which should
remain elevated and increase as people begin rolling off fixed loans”.
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