Major banks enjoying "last calm before the storm," analyst says
The big four banks saw their biggest combined profit jump in four years, but are enjoying “the last calm before the storm,” according to KPMG.
KPMG’s analysis found the big four posted combined cash profit after tax, from continuing operations, of $28.5 billion. That’s up 6.5% on financial 2021 and the highest result since 2018, according to a report by The Australian.
Dividend payout ratios were steady at 71%, but below a combined pre-pandemic level of 81.3%, KPMG reported. Return on equity was up 67 basis points to nearly 10.6%.
While rising interest rates have helped banks’ net interest margins, the financial sector is girding itself for challenges as the economy and credit growth slow and the spectre of rising loan losses looms.
KPMG Australia head of banking Steve Jackson told The Australian that the banking sector was in a good position to weather a potential economic slowdown and a spike in bad debts.
“It’s all going to depend on how fast and how high rates go – as the [Reserve Bank] continues the monetary policy tightening cycle – as to whether or not we’re going to see some big shifts,” Jackson said. “The existing credit quality of their books is very strong, back to pre-pandemic levels, so all of the signals we were getting in this reporting period were strong and positive.”
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However, while the major banks are in a good position, a number of risks still exist, according to Sam Garland, PwC banking and capital markets leader.
“There are borrowers who have never experienced any rate hike in Australia, and probably very few who remember the last time rates rose this quickly, which was 1994,” Garland told The Australian. “It’s inevitable that rising repayments will cause stress for some customers, so it’s really a question of how strong are the buffers that people have in place and their ability to adjust.”
Garland said the Australian economy would “face a number of challenges” in the coming year.
“These include falling asset values (and housing), reduced demand for loans, lingering supply constraints, especially labour, food and energy,” he said. “It’s likely that, as the global economy pivots in the face of these challenges, that it – but not necessarily Australia – moves into recession, with the consequences that implies.”
