Good article from James Eyers at The Age:
1) Bank margins are under pressure
Over the first half, bank net interest margins expanded by two basis points, but “this was weaker than anticipated as front book competition offset much of the mortgage repricing benefit,” said UBS analyst Jonathan Mott…..
2) Bad debts are rising, but off a low base and in isolated areas
It would seem that asset quality has gone past its low trough; most analysts are expecting banks to report higher impairment expenses in the second half after large ‘single name exposures’ led to increases in impaired assets and provisions in the first half…..
3) Dividends are under pressure
Apart from ANZ, which surprised the market on Thursday when it cut its interim dividend 7 per cent…. payout ratios continued to creep higher. Analysts think NAB is the most likely bank to follow ANZ and to cut its dividend…..
4) Stock prices will remain volatile
Despite the week of disclosures and presentations for the banks, there are still a lot of mixed messages and issues that remain uncertain for the banks, which will compound volatility as investors shift positions on the sector.
The analysts took different core messages from each bank during last week. Mr Martin says ANZ’s was the best result for costs, NAB’s was the best for revenue growth, while Westpac was the best result for provisioning by taking more upfront. While the results showed consumer banking earnings to be strong, institutional banking earnings were very weak.
“The sector outlook will remain difficult in the second half,” says Goldman’s Mr Lyons.
Australian banks face three major headwinds. Personal credit is shrinking, reflecting consumer caution, while credit to business and housing has been buoyed by low interest rates.
But this is likely to slow as capital ratios increase.
And pressure on interest margins continues.