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Australian Banks Set for Earnings Season Amid Market Volatility
Starting May 5, Australian banking institutions will announce their financial performance reports, with Westpac leading the charge. Despite a first quarter that fell short of expectations, primarily due to lower net interest income and capital ratios, the financial sector has outshone the wider market, with a year-to-date increase of approximately 2.5%, contrasting sharply with the stagnant performance of the S&P/ASX 200 index.
Market Overview
The financial sector has shown remarkable resilience thus far, underpinned by stable returns on equity and a robust economic environment, characterised by low credit loss rates and stable unemployment. Key players such as the Commonwealth Bank of Australia (CBA), ANZ, and the Bank of Queensland have recorded significant share price increases — around 10%, 6%, and 11%, respectively. However, Bendigo and Adelaide Bank, along with Macquarie, have lagged behind their peers.
As the sector faces potential challenges in the latter half of 2025, the bond markets are already anticipating three rate cuts of 25 basis points each before the year concludes. Such adjustments may adversely affect net interest margins and overall earnings, alongside minimal respite from persistently low bad debt charges. Notably, the financials sector has recently seen a 5% uptick over the past month, trading at a slight premium to the ASX 200, a marked change from its historical average of a 13% discount.
Reporting Schedule
The upcoming financial results are as follows:
| Ticker | Company | Date | Event |
|---|---|---|---|
| WBC | Westpac | 5-May-25 | 1H25 result |
| NAB | National Australia Bank | 7-May-25 | 1H25 result |
| ANZ | Australia and New Zealand Banking Group | 8-May-25 | 1H25 result |
| MQG | Macquarie Group | 9-May-25 | 1H25 result |
| CBA | Commonwealth Bank | 14-May-25 | 3Q25 update |
Earnings Forecasts
UBS has provided projections for major banks (excluding CBA) ahead of their first-half results:
| Earnings ($m) | ANZ | NAB | WBC |
|---|---|---|---|
| Cash NPAT | 3,532 | 3,476 | 3,437 |
| % Growth YoY | 0.2% | -1.8% | 2.8% |
| Cash EPS (cps) | 118 | 111 | 103 |
| % Growth YoY | 1.4% | 0.3% | 3.5% |
| Net Interest Margin (%) | 1.59% | 1.72% | 1.94% |
| Dividend (cps) | 83 | 85 | 80 |
| % Growth YoY | -0.1% | 1.5% | -10.9% |
Key Considerations
-
Westpac: Forecasts suggest a cash NPAT of $3.5 billion and a 9.9% return on equity. The recent technological advancements and new executive appointments have improved market sentiment. However, a slight reduction in net interest margins and lower-than-expected capital ratios raise concerns about potential fluctuations.
-
NAB: Expected to report a $3.5 billion NPAT, reflecting a 2% annual decline, with a recovering CET1 ratio of 11.6%. Issues related to asset quality and recent executive changes have tempered overall optimism.
- ANZ: Anticipated to have a challenging quarter, though UBS’s predictions slightly exceed consensus for pre-provision operating profits. The ongoing integration of Suncorp Bank, progress on ANZ Plus migration, and regulatory requirements regarding a $250 million capital add-on will be closely monitored.
Valuation Analysis
The banking sector currently trades at 19.5 times FY26 forecasts and has a price-to-book ratio of 2.3, indicating stretched valuations, though somewhat justified by sector stability.
Attention will be focused on trends in net interest margins, cost control measures, and capital robustness as banks prepare for anticipated lower interest rates. While CBA remains a pivotal industry leader, analysts point to Westpac’s potential for valuation adjustments and Bank of Queensland’s prospects of surpassing expectations as salient stocks to watch.
In conclusion, Australian banks have established themselves as a relative safe haven in the current economic landscape, but their future performance will rely heavily on maintaining margin integrity and executing strategic initiatives successfully.
