Banks to reveal how Iran conflict has affected earnings
Big banks are dropping their guard as Australian homeowners look at further interest rate pain and higher inflation due to conflict in the Middle East.
ANZ, National Australia Bank and Westpac will report interim results from Friday, and while the news is likely to be solid, less sunny days may be ahead.
This set of bank earnings covers the six months ending March 31, which began in February and included the U.S.-Israeli war against Iran, which led to a massive increase in energy costs.
Banks have since had to deal with market volatility caused by Donald Trump and put up barriers to a potential increase in bad debts held by customers struggling with rising costs of living and looming increases in loan interest rates.
NAB warned that its first-half results would include credit impairment charges of $706 million, while Westpac warned that geopolitical uncertainty and the resulting increase in market volatility was impacting its earnings.
This series of results is likely to be strong for business loan and mortgage growth, Zara Lyons, an Australian analyst and portfolio manager at Fidelity International, told AAP.
“It’s a bit of a mixed bag, but if it weren’t for our energy situation, I would say the banks were in very good health going into this period,” he said.
“The outlook seems a little less bright than before.
“But I still think they are very resilient and should be able to handle this world.”
Josh Gilbert, eToro’s leading Australia-Pacific market analyst, said the Reserve Bank’s back-to-back rate hikes in 2026 were a headwind for bank margins on paper.
“But higher rates are a double-edged sword; they push up margins on one side of the book while squeezing borrowers on the other, and that’s where pressure starts to build on provisioning and credit quality,” he said.
Bank watchdogs will look at how far they’ve gone with provisioning, the size of the buffers they’ve set aside for losses they haven’t seen yet.
“If banks are coming down hard, that’s management signaling what they see in household and business records,” Mr. Gilbert said.
They will also look at net interest margins and returns on capital, an important measure of profitability, Mr. Gilbert said.
He noted that Westpac was sitting on a capital surplus and had the largest pile of franking loans in the industry, which put a special dividend on the table.
“Results will matter, as always, but what the administration says about the path ahead will likely be more important,” he added.
“The market is clearly preparing for cautious tones across the industry.”
ANZ will stand out with its results on Friday after making a cash profit of $1.94 billion in the first quarter, followed by NAB ($2.02 billion) on May 4 and Westpac ($1.9 billion) on May 5.
Commonwealth Bank will publish its third quarter update on May 13.
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