Australian Banking Sector Reporting Season Preview

Submitted by Share Trading on 22 April, 2008 - 13:01

Australian Banking Sector reporting season preview from sharemarket analyst Macquarie Research Equities.

Australian Banks – Reporting Season Preview

In addition to yesterday’s banking piece, Macquarie Research Equities (MRE) detail their expectations for the 1H08 results for ANZ, WBC, SGB and NAB. The forecasts are set below consensus with downward revisions likely. The clear impetus in this case will be the cautious approach to credit growth and impairments costs. Whilst this caution is likely to limit share price upside in the short term, what are the real fundamentals of the banking outlook?

Impact and Outlook

  • 1H08 Margin Pressure: 1H08 margins for the reporting banks are set to reflect an average 12bp decline;
  • Credit Growth Outlook: Asset growth is expected to be quite solid on the back of strong household demand and approx 25% growth in business lines. However, household credit growth is expected to slow towards 9% over the next 2 years from circa 12% 1H08.
  • Impairment Uncertainty: As probabilities rise so too should growth in impairment provisioning – this is mainly caused by higher interest rates and easing growth.
  • Capital Outlook: MRE predicates a capital overhang for the sector caused predominantly by the effect of waning profitability and strong year-to-date weighted asset growth. Analysis indicates that NAB is perhaps the most capital hungry, whilst WBC remains well positioned for a capital issue.
  • One-off Items: Gains from the IPO of an offshore card issuer likely to be detracted by higher impairment charges – ANZ & NAB; derivative losses – ANZ; and a recent tax ruling against SGB.

The Banks

ANZ: need to focus on the quality of institutional lending to nullify investor concerns
SGB: likely to raise further doubt over the firm’s 10% earnings guidance
NAB: earnings guidance will most likely be scrutinised over mortgage pricing and market share concerns
WBC: remains the pick of the crop for MRE