If banks are a barometer of the economy’s health, Australia is thriving.
Three of the big four banks report half year results in the next week and all are tipped to post record or near record cash profits.
However, a stronger or weaker performing economy poses different risks for the banks and analysts will closely look at their forward guidance.
Lending growth generally – and to business especially – has been sluggish since the GFC in 2008 but even so the multi-billion dollar profits keep soaring.
That has confused people, says Morningstar analyst David Ellis, but the banks have used it to their advantage.
“They have been able to manage their cost bases and in the last three to four years they have had the benefit of sharply lower bad (unpaid) debt increases,” he told AAP.
Smaller loan books have meant the banks can set aside less buffer capital to meet banking regulations and that has freed them to pay higher dividends and boosted their share price.
It is regarded as improving and wholesale funding costs are down.
Morningstar and Credit Suisse are forecasting a record $3.5 billion cash profit for ANZ on Thursday, up 11 per cent on a year ago.
It also sees the dividend climbing from 73 cents a share to 85 cents while Credit Suisse is more conservative, predicting an 80 cent dividend.
Westpac is forecast by Morningstar and Credit Suisse to lift cash earnings to a record $3.8 billion from $3.5 billion when it reports on Monday.
Credit Suisse says it will be a five per cent rise in the dividend to 90 cents plus a 10 cent special dividend.
National Australia Bank could be a relative disappointment, if a $3 billion-plus cash profit could be called that.
Credit Suisse is forecasting a 10 per cent rise to $3.2 billion for its result on May 8, while Morningstar estimates a $3.1 billion result.
The bank’s share price has not hit the record highs in the past year that its peers have and headwinds include its UK operations.
If there is an economic downturn into a recession and higher joblessness, all of the banks face the risk of bad debt expense increases.
A PwC report this week highlighted how highly exposed Australia’s banks are to a rise in interest rates given the effect that would have on home owners’ ability to repay mortgages.
The results from ANZ, Westpac and NAB come after rival Commonwealth Bank unveiled a record $4.3 billion first half cash profit in February.