Bank margins to be hit despite cost cuts
(11 February 2013 – Australia) A slowing economy and debt-shy consumers are threatening to take some wind out of the banking sector’s sails; profit records are expected to tumble as the big four keep up with earning power.
This year, the focus will not just be on big profits but banks are looking to shore up their bottom lines by cutting costs as sluggish credit growth looms.
Next week the Commonwealth Bank of Australia (CBA) is expected to hand down a A$3.65 billion half-year profit and enjoyed a 28 percent surge in bank stocks last year, pushing its market value through A$100 billion.
National Australia Bank (NAB) surprised the market with better-than-expected December quarter cash earnings of A$1.45 billion.
Investors expect the other majors CommBank and ANZ to post solid profit growth, Westpac no longer reports profits every quarter.
In the year to December, the lucrative market for owner-occupied housing loans grew at its slowest pace on record, at 4.1 percent.
Despite sluggish credit growth, bank bottom lines are benefiting because investors' fears of rising bad debts caused by an end to the mining boom have failed to eventuate, at least for now.
Jobs figures this week tended to support this view. While the labour market still looks fragile, the unemployment rate remained steady at 5.4 percent, once again defying predictions it would rise.
Also bolstering bank profits have been the fall in funding costs in recent months.
With the big four banks also declining to pass on in full the 0.5 percentage points in interest rate cuts in October and December, analysts think the industry's margins from lending have probably widened.
NAB reported wider margins across its customer base during the December quarter, a likely reflection of its decision to not pass on interest rate cuts in full.
Next week the Commonwealth Bank of Australia (CBA) is expected to hand down a A$3.65 billion half-year profit and enjoyed a 28 percent surge in bank stocks last year, pushing its market value through A$100 billion.
National Australia Bank (NAB) surprised the market with better-than-expected December quarter cash earnings of A$1.45 billion.
Investors expect the other majors CommBank and ANZ to post solid profit growth, Westpac no longer reports profits every quarter.
In the year to December, the lucrative market for owner-occupied housing loans grew at its slowest pace on record, at 4.1 percent.
Despite sluggish credit growth, bank bottom lines are benefiting because investors' fears of rising bad debts caused by an end to the mining boom have failed to eventuate, at least for now.
Jobs figures this week tended to support this view. While the labour market still looks fragile, the unemployment rate remained steady at 5.4 percent, once again defying predictions it would rise.
Also bolstering bank profits have been the fall in funding costs in recent months.
With the big four banks also declining to pass on in full the 0.5 percentage points in interest rate cuts in October and December, analysts think the industry's margins from lending have probably widened.
NAB reported wider margins across its customer base during the December quarter, a likely reflection of its decision to not pass on interest rate cuts in full.
Subscribe