As homeowners prepare to tighten their belts after being hit by a painful interest rate hike, our “big four” banks are making eye-popping profits.
Australia’s ‘big four’ banks have reaped windfall profits following the country’s housing crisis as landlords brace for months of interest rate struggles.
According to an EY analysis of the 2022 half-year results of Australia’s major banks, Westpac, NAB, ANZ and CBA made a total of $14.4 billion in cash profits, a staggering increase of $700 million on the results of last year, an increase of 5.1%. .
The big four also share a massive $1.87 trillion in Australian home loans, with loans increasing by $43.9 billion in the year to March 2022.
EY reported an increased level of high debt-to-income ratio loans, noting that borrowers in this category were at “higher risk of mortgage default” – but said household balance sheets were “generally in good condition”.
“While margin compression is expected to continue in the near term, the cycle of rising interest rates should ease pressures on net interest margins (NIM) and lead to improved bank profitability over the medium term. “, Tim Dring, EY Region Banking and Capital Markets Leader, said Oceania.
“However, current economic risks point to continued uncertainty for the outlook for the banking sector.
“The higher than expected rise in the official RBA exchange rate last week and expected future rises provide opportunities for revenue and profit growth.
“On the other hand, however, rate hikes coupled with high inflation could also put pressure on asset quality and slow credit growth, and continued mortgage competition could also squeeze upside margins for Banks In today’s economic environment, the only real certainty for the sector is uncertainty.
News of the Big Four’s bumper profits comes just days after Australians were hit with a historic interest rate hike – the first in 11 long years – by the Reserve Bank in a desperate bid to quell inflation, which reached an annual rate of 5.1% and drove prices up at the fastest pace in two decades.
The rate hike was more aggressive than experts had predicted, with the RBA announcing a 25 basis point hike, taking the official exchange rate from 0.1% to 0.35%.
Within hours, all the major banks announced that they would change their rate policies accordingly.
But Australians are now bracing for a lot more pain, with RBA boss Philip Lowe giving an ominous hint of things to come last Tuesday.
“The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further rise in interest rates over the period ahead,” said he said following the rate hike.
“The Board will continue to closely monitor incoming information and the evolving balance of risk as it determines the timing and magnitude of future interest rate increases.”
Meanwhile, according to EY, return on equity at the big four banks also increased by an average of 20 basis points from the half of 2021, to 10.6%, while average net interest margins declined. 14 basis points from a year earlier to 1.75. percent.
Credit impairment charges decreased by 100% compared to the half of 2021, reaching a reversal of $220 million.
“Half-year results show that banks continued to execute well on their spend management initiatives, although costs remain high due to ongoing compliance, regulatory and technology programs, with the need for additional resources to meet demand for loans and to combat cybersecurity and financial crime risks,” Dring said.
“Looking ahead, economic pressures point to continued uncertainty for the banking sector, despite the expectation of a cash rate hike which should help ease pressure on margins and boost bank profitability.
“This underscores that banks cannot afford to take their foot off the accelerator when it comes to their strategic cost management and the transformation of their operations.”