According to EY, robust asset growth and quality, capital returns and careful expense management were the contributing factors to a solid performance from Australia’s major banks in their 2022 half year results, despite margins continuing to constrain earnings.
Year to date, Westpac’s share price had risen 14.61%, NAB was up by 8.32%, CBA had increased by 1.42% and ANZ had fallen 5.85%.
Tim Dring, EY region banking and capital markets leader, Oceania said: “While margin compression is likely to continue in the short term, the rising interest rate cycle should ease net interest margin (NIM) pressures and lead to improved profitability for the banks over the medium term.
“However, ongoing economic risks point to continued uncertainty for the banking sector’s outlook.”
According to KPMG, growth in cash profits were caused by an increase in total operating income (on a cash basis) rising 0.8% on 1H21 from $39.6 billion to $39.9 billion. Off the back of this earnings growth, the major banks’ return on equity rose to 10.6% from 10.4% in FY21.
KPMG said the underlying drivers of the majors’ operating income growth was due to continued strong volumes in both mortgage and business lending.
“As Australia powered ahead in the first half of FY22, both areas saw continued high demand. The value of mortgage loans was up 2.5% on 2H22, growing to $1,812 billion. At the same time, business lending grew 4.8% in the last half year, to a figure of $1,077 billion,” KPMG said in a statement.
Steve Jackson, KPMG Australia head of banking and capital markets said: “The major banks have successfully used the recovery of the Australian economy and the strong housing market performance to deliver improved financial results. With returns on equity in the sector now again restored to double digits but with uncertainty ahead, it will be interesting to see how they maintain their current momentum.”
Looking ahead, Dring said economic pressures point to continued uncertainty for the banking sector, despite the expectation of a rising cash rate that should help ease the pressure on margins and boost the major banks’ profitability.
“This highlights that banks cannot afford to take their foot off the accelerator when it comes to their strategic cost management and operations transformation.”
