Australian Banks: Strong H1 2023 Results On Net Interest Income Growth; Asset Quality Remains Sound
DBRS Morningstar has published a commentary discussing large Australian banks’ recent H1 2023 results, including Australia and New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking Corporation.Key points include:
• The three large Australian banks reported solid results in the first half of 2023 primarily driven by strong net interest income growth on the back of higher interest rates and solid new lending volume growth.
• Credit costs increased for all three banks year-on-year but still remain at historical low levels.
• Asset quality remained strong for the three Australian banks at end-March 2023. However, there have been some early signs of asset quality deterioration since end-FY2022, largely in the form of higher Stage 2 loans and a slight uptick in Stage 3 loans, although the latter still remain below pandemic levels.
“For the second half of 2023, we expect Australian Banks to continue to benefit from the higher interest rate environment although we recognize that the benefit is likely to be less visible, mainly due to potential headwinds in the cost of deposits and wholesale funding as well as fierce mortgage lending competition,” notes Maria Rivas, Senior Vice President, Global FIG at DBRS Morningstar. “In addition, we expect asset quality to marginally deteriorate, which could potentially require higher provisions, as some borrowers will inevitably experience pressure from higher interest rates, persistent inflation and higher cost of living.”
Australia and New Zealand Banking Group provides a range of banking and financial products and services to retail, small business, corporate and institutional clients. Co. operates on a divisional structure with six divisions: Australia, Institutional, New Zealand, Wealth Australia, Asia Retail & Pacific and Technology Services & Operations and Group Centre. Co.'s core products offered include deposits, credit cards, loans, investments and insurance, retail products provided to consumers, and banking and financial solutions provided to business customers through managers, among others. As of Sept 30 2015, Co. had total assets of A$914,869,000,000 and total deposits of A$566,847,000,000.
National Australia Bank provides banking services, credit and access card facilities, leasing, housing and general finance, international banking, investment banking, wealth management, funds management, life insurance and custodian, trustee and nominee services. Co.'s division include: Australian Banking, which provides products and services to retail and business customers; National Australia Bank Limited Wealth, which provides superannuation, investment and insurance solutions; and New Zealand Banking, which comprises the Retail, Business, Agribusiness, Corporate and Institutional and Insurance franchises in New Zealand. As of Sept 30 2016, Co. had total assets of A$777.62 billion.
Westpac Banking is a banking organization with branches, affiliates and controlled entities throughout Australia, New Zealand, Asia and in the Pacific region. Co. provides a range of banking and financial services in these markets, including consumer, business and institutional banking and wealth management services. Co. is engaged in the provision of financial services including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds management, insurance services, leasing finance, general finance, interest rate risk management and foreign exchange services. As of Sep 30 2017, Co. had total assets of A$851,875,000,000.
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