6 charts that CommBank, NAB, Westpac and ANZ investors should watch

Macquarie says the Big Four Banks delivered their strongest set of earnings in more than a decade, with pre-provision profit growth of 15-19% in FY23. But this is likely the best its going to get – at least for a little while.

“The excitement largely stopped in 1H23 as margins peaked, and 2H23 underlying trends were disappointing,” the analysts said, adding that “with ongoing expense pressures coupled with slowing growth and the impact of competition, we expect earnings to decline by ~4-15% in FY24.”

FY23 At a Glance

Here are Macquarie's key takeaways from major bank earnings. The commentary refers to the FY23 results from ANZ, NAB and Westpac and Commonwealth Bank's September quarter trading update.

• ANZ (ASX: ANZ): "We believe ANZ delivered a better 2H23 result than peers, underpinned by better cost management in the second half."

• CBA (ASX: CBA): "CBA’s 1Q24 trends were broadly consistent with peers, albeit on balance it appears that earnings held up slightly better ... The key risk for CBA remains around its ability to manage deposit margins as higher rates led to price competition and customer behavioural changes."

• NAB (ASX: NAB): "NAB's key disappointment in the 2H23 result was lower liability benefits relative to peers ... NAB had a weaker funding position than peers and appears to have used deposits to address its funding requirements."

• Westpac (ASX: WBC): "WBC's 2H23 underlying PPOP was slightly below expectations, driven by disappointing revenue trends and higher expenses."

Earnings trends in 6 charts

Earnings trends turned negative on a half-on-half basis: Except for CBA, all major banks reported negative revenue growth and higher expenses.

Source: Macquarie Research

Margin tailwinds are coming: Macquarie sees margin headwinds in the coming year and forecasts an 8-10 bp decline across the majors in FY24.

Source: Macquarie Research

Expense headwinds: Banks are battling a myriad of cost challenges including wages, vendor/technology and amortisation costs.

Source: Macquarie Research

Loan loss provisions remain steady: "Collective provision levels didn't change materially across the banks ... We think balance sheets across the banks remain broadly strong, and banks are well provisioned."

Source: Macquarie Research

Credit quality remains sound: "Arrears increased, but off low bases ... Broadly speaking, mortgage arrears are still low, while SME arrears remain below long-term levels."

Source: Macquarie Research

Margins run out of steam: Macquarie expects FY22-23 tailwinds to turn into headwinds. All major banks saw declines in net interest margins in the second half of 2023, driven by declines across consumer divisions.

Source: Macquarie Research

Ratings & Target Prices

Source: Macquarie Research. Data as at 20 November 2023