The ANZ Bank's 2022-23 annual results, announced on Monday with their solid bottom line and higher dividends, have capped off the best year in five years for our Big Four banks: Commonwealth, NAB, Westpac, and ANZ.
The rate rises from the Reserve Bank have helped fatten the key net interest margins (NIMs) of the banks, especially the Big Four with their mortgage-heavy loan portfolios. Their profitability depends heavily on the ability of managements to control costs and lend at finely pitched rates.
For the past 18 months, all they have had to do to make more money is merely to match the 13 rate rises from the RBA with rate rises of their own, typically 0.25%, and occasionally 0.25%, while keeping a lid on costs and watching those NIMs expand.
However, not all banks managed to do that convincingly. ANZ saw little movement, and Westpac could only manage a 2-point rise (after a rise in 2021-22). Commonwealth and NAB did well, with CBA easily the winner, boasting a NIM of 2.07% (or $2.07 net from every dollar of revenue from interest).
After early bouts of intense competition driven by breathless media reports, some silly analysts, and greedy investors, the banks have behaved themselves. Regulators have helped bring them into line with nudges and winks. The Commonwealth Bank lost market shares in recent months, and other lenders outside the Big Four picked up market share.
It's no wonder that APRA, the key regulator, revealed a month ago that the Big Four banks, plus seven others, had easily survived a nasty stress test. APRA's stress test assessed the resilience of the banking system under the assumption of a 'hard landing' for the economy, including a surge in unemployment to 10%, high inflation, and a one-third decline in house prices, reminiscent of Australia's 5.3% house price decrease in 2022 due to rate hikes by the RBA.
So, the bottom line after the reporting season for the full year is that not much has changed except profits have grown faster than inflation, as expected. Credit impairment charges rose, but this was also expected given the 13 rate rises from the RBA, higher bank mortgage costs, weak income growth, and falling real wages.
The Big Four banks' 2023 full-year results saw their combined statutory earnings up 8.2% from the same time last year, reaching $31.99 billion, up from $28.5 billion the previous year. Considering that inflation was 5.4% in the year to June and 6% in 2022-23, the Big Four have done better than most of the community in finding their incomes growing, instead of being eaten up by inflation and rising costs.
Cash earnings were higher, but only three banks – CBA, NAB, and ANZ – used cash earnings as a comparison, while Westpac returned to just a single profit measure, mirroring the statutory measure of its three peers.
These increased earnings also underpinned improved return on equity, which increased by 125 basis points to an average of 12% across the banks.
Credit impairment charges jumped by a significant $2.96 billion, from a net write-back of $130 million for 2021-22, to $2.83 billion in 2022-23.
All four banks claimed that the majority of their home loan customers remained in good shape, although many were facing challenges as they coped with significant rises in their interest costs.
While there were signs suggesting slower future revenue and earnings growth, these forecasts were made last year with specific warnings about inflationary pressures and higher interest rates leading to falling household consumption—a trend already witnessed in the results of retailers for 2022-23 and the start of 2023-24.
The Commonwealth was the biggest and most profitable bank with statutory earnings of $10.2 billion, up 5%. Its NIM of 2.07% (up from 1.90% in 2021-22) was the highest among the four giants.
NAB was second with statutory earnings of $7.414 billion, up 7.6%, and its NIM jumped to 1.74% from 1.63%.
Westpac saw the biggest profit rise of 26% to $7.2 billion, with a small rise in its NIM of 2 points to 1.95%.
ANZ reported a flat statutory profit of $7.098 billion (actually down $21 million) from 2021-22, with a NIM of 1.70%, up from 1.63%.
In commentary on his firm's survey, Doug Nixon, EY's Oceania Banking and Capital Markets Leader, said, "The banks, like consumers, are facing some tough market conditions ahead."
