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Aussie banks: record profits, squeezed margins

A preview of three of Australia's big four banks ahead of their upcoming earnings reports.

ANZ: Reports May 1

Expectations for ANZ centre around four key parts to the report. The market will be listening out for:

  1. Strong lending growth couple with high capital concentration
  2. Margin downside limited due to largest room to move on net interest margins
  3. Market revenue strength from FX market trading.
  4. Increased growth in risk weight assets

This sees consensus forecast on the cash earnings line at A$3.437 billion; an 8% increase over the period with and interim dividend of 80 cents. ANZ’s net interest margin is expected to fall by approximately 11 basis points to 2.14%, however that will still see it with the largest margins of any of the big four banks. Total revenue estimated to hit A$5.337 billion.

Westpac: Reports May 5    

Westpac’s east coast exposure sees it being the stand out of the four over the past 12 months and the housing recovery takes off. This sees three key themes for WBC:

  1. East coast lending growth – particularly retail housing
  2. Possible positive margins growth – which would buck the trend in the big four as competition has driven this down on most
  3. A strong capital position and positive asset integration – Lloyd’s deal

Consensus forecast sees cash earnings hitting A$3.636 billion; a 5.5% jump on the same period last year. In years past, the build-up of franking credits on WBC’s balance sheet has seen special dividends, however that is unlikely to eventuate this time around and the consensus read for WBC’s interim dividend is 94 cents. Net interest margins are expected to rise to 2.14% which is up on the second half of last year but is still off five basis points on the corresponding period. Like CBA, wealth management is an area to watch.

National Australia Bank: Reports May 8

NAB has come under pressure from investment bank forecasts of the past month and it is understandable as the bank is running at the thin edge of the margin and has the highest chance of disappointing on slight misses. The three themes to watch for NAB are:

  1. UK assets to show continued signs of improvement – heading to a possible sale?
  2. Bad and doubtful debts to continue contract on UK and Australian outlooks
  3. Strong capital generation and a teri-1 ratio that is improving

Consensus forecast for cash earnings is for a 9% increase on the corresponding period to A$3.158 billion, with total revenue hitting A$9.49 billion. Net interest margins are expected to contract by a further four basis points to 1.98%. This now would be the thinnest margins of the big four and shows how much NAB has been willing to look to volume growth over margin growth. Will this cause them to slip? 

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