Here's what to look for when Australia's big four banks post a combined $30 billion record profit this week

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The big four banks will continue their run of record profits this week with an expected combined full year cash profit of $30 billion, a rise of more than 6%.

In 2014, the big four reported combined $28.6 billion in cash earnings, up from $27.1 billion in 2013, an increase of 5.7%.

The healthy increases in profits continue despite key challenges, including financial markets volatility, increasing regulatory capital requirements and some margins squeezed by low interest rates and intense competition.

“To continue to prosper in the new environment, banks will need to refocus on core businesses, redefine their structure and reshape their businesses through technology,” Tim Dring, EY’s Oceania Banking and Capital Markets leader, told Business Insider.

However, this round of full year results for the major banks will to show they have continued to perform well.

Three of the four have different reporting times than most other ASX-listed companies. However, the Commonwealth, Australia’s biggest bank, has a standard July-to-June 12 months and has already revealed its annual results.

The CBA posted a cash profit of $9.137 billion, up 5% on the $8.68 billion in 2014.

The first of the remaining banks to report will be the NAB today, followed by the ANZ tommorrow and Westpac, Monday.

The decision by all four big banks over the last week to increase variable home loan rates for owner occupiers won’t have an impact on results until the second half of 2016.

The reason for increasing home loan rates, the banks argue, is to recover the cost of keeping more capital as required under new rules designed to make the banks more resilient to any future financial crisis.

However, the banks, far from just recouping that cost, will actually improve their profits by between 2% and 3% by lifting home loan interest rates, according to analysis by Deutsche Bank.

EY’s Dring says the rates lift will provide the banks with additional margin to help offset constrained growth and increasing capital requirements.

Here’s what to look for in the full year results being announced over the next few days over the next few days:

NAB

A cash profit of $6.291 billion, a rise of 21.3%, is expected (Evan Lucas of IG).

In 2014, NAB’s cash profit dropped 9.8% to $5.18 billion after it took a $1.504 billion hit on its troubled UK business.

This year Evan Lucas says business banking growth is likely to ramp up and may come at the expense of margins.

The bank is also likely to give details on its UK Cydesdale asset spinoff with an IPO before the end of the year.

Deutsche Bank says the key issues to watch are the progress in exiting the UK business, evidence of an improvement in growth trends in the business bank and an update on its discussions with Nippon Life on a life insurance manufacturing partnership.

NAB went into a trading halt today, pending an announcement. There were reports that the bank had done a deal

ANZ

A cash profit of $7.117 billion, a rise of 2.42%, is expected (Evan Lucas of IG).

Evan Lucas says to watch for the outlook on the bank’s Asia assets. He says asset quality will be questioned.

Deutsche Bank says the key issues any changes to margin trends in the institutional segment, evolution of the business strategy in Asia, further intentions in optimising its portfolio of businesses to improve returns and key reasons for its worse-than-peer bad debt position.

Westpac

A cash profit of $7.820 billion, up 3%.

The bank released unaudited full year results when announcing an additional $3.5 billion capital raising and increasing interest rates for owner-occupied home loans.

So the announcement next Monday is expected to show little variance to the numbers already revealed. Lending was up 7% and customer deposits rose 4%. The net interest margin of 2.08% was unchanged over the year. Expenses increased 5%.

Evan Lucas says costs have been increasing consistently, with senior management costs and institutional banking partly to blame.

Deutsche Bank says to watch for further detail on the improvement in net interest margins, management’s strategy to maintain return on equity despite the current headwinds and detail
on the decline in margins in the institutional business.

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