Westpac, ANZ and NAB report their interim results this week and analysts expect their earnings to show the benefit of lower funding costs, lower bad debt charges, the possible release of collective provisions and stronger trading income.
Macquarie Securities says a big positive for the banks is that there is little bad debt stress in the system, raising the prospect of further reductions in bad and doubtful debt charges.
While remaining loan repayment deferrals are likely to result in rising arrears, in recent months deferrals fell aggressively.
“We expect banks to report credit charges of just 10 to 13 basis points a year over the next three years, compared with an average of 11 to 21 bps over the five years to 2018/19,” Macquarie said.
It estimates that ANZ has excess collective provisions of around A$1.4 billion, Commonwealth Bank $1.9 billion, NAB $1.6 billion and Westpac $1.3 billion.
And it sees scope for the big banks to release an aggregate $1.1 billion to $1.6 billion of collective provisions.
On the funding side, deposit rates continue to fall and term deposit rates are now broadly in line with the cash rate.
Macquarie estimates that lower funding costs could deliver margin improvements of as much as 20 bps, although lower costs will be offset to a great extent by competitive pressure on the lending side.
And based on recent reports from US banks on their trading income, Macquarie said there is plenty of upside for the local banks from their markets businesses.
In its most recent note on the banks, Macquarie has upgraded its forecasts for full year earnings by 2.3 per cent for ANZ, 0.9 per cent for CBA, 4.4 per cent for NAB and 1.4 per cent for Westpac.
It expects ANZ to report cash earnings of $6.2 billion for the full year, compared with $3.7 billion in 2019/20; CBA to report cash earnings of $8.3 billion for the full year, compared with $7.3 billion in 2019/20; NAB to report cash earnings of $5.9 billion for the full year, compared with $3.7 billion in 2019/20; and Westpac to report cash earnings of $6.5 billion for the full year, compared with $2.6 billion in 2019/20.