Australia’s big four banks are performing well with headline cash earnings up 10% for the last six months to $14.7 billion but with slightly weaker margins.
The results, which were above consensus estimates for the ANZ Bank, Westpac, NAB and Commonwealth, were largely driven by growth in retail markets and trade activity, plus tight cost management, according to EY’s analysis of the half year results.
The NAB was the last of the big four to report today with net profit up 15.8 % to $2.9 billion for the six months to the end of March. Earnings were up 8.5% to $3.15 billion.
“Competition is proving fierce in the retail mortgage segment, fuelled by a stronger property market,” EY says.
“As a result, margins are weaker than in prior periods. Corporate and business lending remains subdued, with some uptick in growth expected in the second half of the year.”
The banks’ wealth businesses have benefited from improved funds inflows and equity markets, but results have been tempered by higher disability claims and life insurance lapses.
EY’s Oceania Banking and Capital Markets Leader, Paul Siviour says the Australian banking sector has had to manage costs in light of low levels of confidence and growth.
“At the same time, the banks have been improving asset quality, strengthening capital resilience and capacity, and continue to invest in their systems and customer experience,” Siviour says.
“On balance the half year results demonstrate a solid performance, at or slightly above consensus estimates.
“There are increasing signs that we may be at the bottom of the credit cycle, with historically low loan loss levels and confidence beginning to creep back into the market. What remains to be seen is where the opportunities will emerge and who will be best placed to benefit.”
Siviour said that, in the race for growth, the Australian banks will be keeping a close eye on customer focus, superannuation and wealth, and Asia.
The combined results of the major four banks:
- $14.7 billion in cash earnings up from $13.4 billion in the 2013 half year results, an increase of 10%
- Net interest margins down an average of 6 basis points from the prior comparative period, to 2.08%
- Overall reduction in total net provisions (bad loans) of $1 billion from the prior comparative period, to $17.3 billion
- Return on equity improves by an average of 30 basis points (0.3%) from the prior comparative period, to 16.3%
- Dividend payout ratios have decreased by an average of 6 basis points (0.06%) from the prior comparative period
Here’s the individual bank results:
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