Earnings at Australia’s big four banks just fell to the lowest level since 2012

(Justin Setterfield / Getty Images)
  • With bank reporting season now in the books, the results show sector earnings per share (EPS) fell to the lowest level since 2012.
  • Despite that, the banks also reported the lowest loan impairment charges since records began in 1980.
  • UBS maintains its cautious view of the sector, with earnings headwinds “likely to last several years”.

“Times are tough” for the big four Australian banks, UBS says.

Full-year reporting results for NAB, ANZ and Westpac are now complete for 2018, while Commonwealth Bank this week provided a trading update for the September quarter.

The big four faced upward pressure on funding costs through the middle of the year, creating margin pressures which saw CBA, ANZ and Westpac raise mortgage interest rates.

And UBS said this year’s results were “heavily impacted” by large one-off items, such as asset sales and remediation costs stemming from allegations of misconduct at the banking royal commission.

The net effect was that earnings per share among the big four banks fell by 7%. As a result, sector-wide EPS fell “back to 2012 levels”.

“This comes despite the lowest credit impairment charges since the banks began reporting asset quality in 1980.”

This table from UBS summarises the latest results from bank reporting season, with cash earnings per share highlighted:

UBS Bank

As a comparison, this is what earnings per share looked like for the 2018 half-year results back in March.

UBS bank

In line with their recent view towards the sector, UBS remains “very cautious” on the big four banks.

As lending standards tighten, the bank maintains that the risk of a slowdown in credit growth developing in to a “credit crunch” is “real and rising”.

In view of that, “the banking sector is facing a period of substantial and sustained earnings pressure which is likely to last several years”, UBS said.