With Westpac’s results due next week,followed by a Commonwealth Bank trading update,the bank profit season is likely to be dominated by the impacts of the rapid-fire increases in interest rates during the last year.
A key focus for investors will be how the 3.5 percentage point rises in official rates are affecting bank’s profit margins,which surged last year,while there will also be a focus on any signs of rising borrower stress.
The Reserve Bank is expected to keep rates unchanged this Tuesday, but its cash rate rises in the past year have helped deliver a windfall to banks because lenders have generally increased lending rates by more than deposit rates.
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According to analyst estimates,the profits of NAB,ANZ and Westpac are all expected to increase by well above 10 per cent,mainly because of a sharp widening in net interest margins (NIMs),which compare funding costs with banks’ pricing of loans.
But despite the surging profits,which are likely to fuel bigger dividends,some in the market believe banks will face a tougher slog in the second half,asAustralian rates get close to peaking.
Portfolio manager at Opal Capital,Omkar Joshi,said interest rate rises were no longer boosting bank margins like they did last year,due in part togrowing competition for deposits and loans. Joshi said investors were also eyeing the risk of rising bad debts,which are expected as more borrowers feel the hit from rising interest rates