Big four banks' earnings outlook to remain solid: Jarden
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The news: Jarden expects Australia's major banks to report "resilient" full-year results next month, with NAB its continued preferred pick among the lenders.
The numbers: Westpac (4 November), National Australia Bank (7 November), ANZ (8 November) and Commonwealth Bank (13 November) are all due to report full-year results at the start of next month.
Across the banks, Jarden analysts said they anticipate second-half profit to lower 2% half on half, with margins "broadly stable", credit quality normalising further, and likely fresh capital returns from Westpac.
They saw upside risks of 2% to 3% to consensus, with focus on the prospects of margin stability continuing, potential for bad and doubtful debts (BDDs) to be better than expected, and the extent of business banking competition.
Jarden expects Westpac to report profit of $7.03 billion, with second-half profit up 0.5% half on half, as stable net interest margin (NIM) and lower BDDs offset higher costs and sluggish mortgage growth.
It forecasts NAB to post full-year profit of $7.08 billion, with second-half profit down slightly as lower markets and higher costs offset tailwinds from a "flattish" NIM and lower BDDs.
For ANZ, Jarden expects FY24 profit of $7.03 billion, with second-half profit 3% lower compared to the first half, mainly due to higher BDDs and costs.
Jarden noted that CBA's Q1 FY25 disclosures are "set to be limited", with focus likely on the pace of core margin stability on rising front book mortgage competition.
The context: Jarden's preference on the major lenders is NAB, followed by Westpac, ANZ and CBA. Jarden is rated 'overweight' on NAB, 'neutral' on Westpac and ANZ, and 'underweight' on CBA.
More widely, Jarden said the sector's relative price-to-earnings valuation is now less stretched and bank earnings are "likely solid" in the near-term.
Meanwhile, Morningstar said that an increase in loan losses is expected to keep major banks' profit growth "modest", despite its expectations of single-digit credit growth and stable NIMs.
Morningstar analyst Nathan Zaia noted that bank margins stabilised over the past quarter, and he expects medium-term margins to be managed to generate returns close to the cost of equity.
The sources: Jarden research, Morningstar research
