Macquarie says banks are well-positioned for FY23: ANZ, Westpac, CBA and NAB

The latest round of results from the Big Four banks showcased a turnaround for margins, which is expected to underpin further earnings growth in FY23, according to Macquarie.

However, Macquarie said it is increasingly concerned about the unrealistic expectations for the sector in FY24, where margin headwinds, slowing credit growth and higher expenses leaves its analysts cautious on the sector.

"Despite mixed remarks about exit rates, we expect banks to deliver strong revenue growth in FY23 but expect margins to peak in 1H23," the analysts said in a note last Friday.

ANZ was viewed as the most preferred big four bank pick, followed by NAB, Commonwealth Bank and Westpac.

Source: Macquarie Research | Table: Market Index

Results recap

ANZ: 'As good as it gets'

"ANZ delivered one of its best results in recent years, underpinned by improving margins," said Macquarie.

"While margin tailwinds offer a good backdrop for management to absorb higher expenses in FY23, the medium-term outlook appears more challenging."

The analysts expect ANZ to deliver below system pre-provision operating profits after 'capturing much of the margin upside in 2H22'. Still, ANZ was ranked as the most preferred bank among the Big Four due to its post earnings de-rating and valuation discount to peers.

CBA: 'Right place, right time'

CBA is viewed as the bank that's most leveraged to higher rates and delivered the most 'superior margins trends to peers' in the September quarter.

"While CBA remains expensive at current levels trading well above our fundamental valuation, with no obvious catalyst for underperformance and favourable near-term earnings momentum, CBA is unlikely to de-rate relative to peers while underlying trends are solid," noted the analysts.

NAB: Mixed full year results

NAB posted its full-year results on 9 November, which the analysts viewed as a solid performance. However, the interest rate leverage was below both Macquarie expectations and the numbers posted by its peers.

"We estimate lower leverage to rates for NAB than that of CBA and Westpac. While NAB continues to execute well (best revenue performance in FY22), the risk to consensus estimates is skewed to the downside, in our view," the analysts said.

Westpac: 'Death, taxes and expense growth'

Westpac was hit by arguably the most negative commentary by Macquarie analysts. The company's full-year results on 7 November was viewed as a 'meaningful improvement' but revenue performance continues to lag behind its peers.

"We continue to see downside risk to Westpac's revenue performance from execution risk and believe consensus expense expectations are unrealistic, resulting in our forecasts being well below expectations," said Macquarie

Big 4 banks year-to-date performance: ANZ (blue), CBA (yellow), Westpac (red) and NAB (black)