Three of Australia's largest banks are likely to log single-digit percentage declines in earnings for the year ended Sept. 30 as margins contract.
ANZ Group Holdings Ltd., Australia's second-largest bank by assets, is forecast to report A$6.84 billion in net income for the fiscal year, down 7.7% from the prior fiscal year, according to consensus estimates data from Visible Alpha, a part of S&P Global Market Intelligence. Net income at Westpac Banking Corp. is projected to drop 3.6% to A$6.96 billion for the fiscal year, while that of National Australia Bank Ltd. is expected to fall 8.7%.
Commonwealth Bank of Australia, the country's largest bank by assets, follows a different financial calendar than its peers, with its fiscal year ending June 30. Commonwealth Bank of Australia is projected to post a 0.8% decline in net income for the year ending June 30, 2025.
"Overall bank profits should be holding relatively flat," Nathan Zaia, senior equity analyst at Morningstar, told Market intelligence. Zaia expects an increase in credit losses but said "the banks have ample provisions for loan losses and borrowers are sitting on large equity buffers, so bad debt expenses are unlikely to be materially higher in the short term."
Westpac is scheduled to announce its earnings results Nov. 4, followed by National Australia Bank on Nov. 7 and ANZ on Nov. 8. Commonwealth Bank of Australia will release its fiscal first-quarter trading update Nov. 13.
Westpac had said its full-year 2024 net profit will take a A$123 million hit due to impacts from notable items related to "unrealized fair value gains and losses on economic hedges and net ineffectiveness on qualifying hedges, which reverse over time."
Australian banks have maintained prudent lending standards and are well positioned to continue supplying credit to the economy through challenging conditions, according to a September report from the Reserve Bank of Australia. While the share of bank loans that are in arrears has increased from low levels, reflecting a small but rising number of borrowers who are encountering financial stress, this has had a limited impact on the resilience of the banking system, the central bank said.
Margins, asset quality
Meanwhile, net interest margins at ANZ, Westpac and National Australia Bank are likely to shrink, according to Visible Alpha data. ANZ's net interest margin is estimated to drop 13 basis points to 1.57%, Westpac's to 1.92% from 1.96% and National Australia Bank's to 1.72% from 1.74%.
"Trajectory of margins will be a key focus area, especially in the consumer segment," Zaia said, as "mortgage discounting seems to be heating up again, but that is likely being offset by lower deposit rates."
Analysts' estimates indicate asset quality will deteriorate at each of the three lenders in the fiscal year ended Sept. 30.
The nonperforming asset ratio, a key indicator of a bank's credit quality, at Westpac is expected increase 5 bps to 0.98%, while the ratios of National Australia Bank and ANZ are expected to deteriorate to 0.58% and 0.51%, respectively, from 0.45% and 0.39%.
Silver lining
Despite the likely decline in net income, analysts expect Westpac and National Australia Bank to pay higher dividends than the prior fiscal year.
Westpac could pay a per-share dividend of A$1.76 for fiscal 2024, representing a jump of 23.9% over the bank's prior-year dividend, according to Visible Alpha data. National Australia Bank will likely pay a dividend of A$1.68 per share, a 0.6% increase.
ANZ is projected to pay a per-share dividend of A$1.66, representing a drop of 5.1% from the prior fiscal year.
