National Australia Bank emerges as a clear winner as ANZ, Westpac and Commonwealth Bank report interim results as mortgage spreads shrink

CBA chief executive Matt Comyn will provide limited comment on Thursday, but analysts will be keen to see if the country’s biggest bank can match National Australia Bank’s impressive performance.

“While all banks provide data on theoretical interest rate leverage [which are unreconcilable with each other]NAB has a significant advantage over its peers,” said Barrenjoey banking analyst Jon Mott.

“With housing highly commoditized and predominantly distributed through brokers, much of the banks’ rate leverage is likely to be eliminated by competition. NAB’s 27% share of the SME market provides some net interest margin protection.

Strong demand for credit

Barrenjoey calculates that NAB’s business loan NIM has risen 12 basis points to 1.94% over the past year, while its home loan NIM has contracted 10 basis points to 1. .22%.

NAB’s merchant bank has grown almost twice as fast as the market, and it expects continued strong performance, driven by the strongest demand for credit seen since the global financial crisis.

CBA has signaled its intention to grow its SME customer base and become a real competitor to NAB, the No. 1 corporate bank. During the first half of the year, the CBA’s business loan book grew by 12.5%, or $13.2 billion, and its business deposits grew by 14.1%, or $21.0 billions of dollars.

“Given its operational momentum and dominance in SME banking, we would not be surprised to see NAB continue to re-evaluate from ANZ and Westpac to CBA over time. With the banking industry facing multiple challenges, NAB remains our favorite game,” said Mott.

NAB and ANZ both increased their dividends and recovery provisions related to the COVID-19 pandemic, saying the economy was in good shape and companies would continue to invest even if growth slowed in the mortgage market in due to rising interest rates.

ANZ boss Shayne Elliott said the bank was still refining its commercial banking strategy after separating it from retail banking in a shake-up that saw the former retail banking boss quit and commercial Mark Hand.

Mr Elliott assured investors that ANZ would not achieve its promised return to growth in a shrinking mortgage market without sacrificing profit margins, signaling that the bank would instead deploy capital to support its commercial customers.

The two Melbourne-based banks announced last week that increased competition had squeezed net interest margins in the mortgage market in the first half of the year. But investors were unhappy that both banks strayed from cost targets.

Mr Elliott said the bank could no longer keep costs at $8bn given rising inflation and expected wage growth, which accounted for two-thirds of ANZ’s costs. Meanwhile, NAB said it would spend an additional $80 million to $120 million a year to comply with an enforceable commitment with AUSTRAC, raising its cost growth target to between 2.6% and 3%.

Macquarie Group gave a similar assessment of the outlook, saying its home lending business would suffer the same blows from competitive pressures and rising costs of compliance and technology investment.

After Macquarie chief executive Shemara Wikramanayake warned investors not to expect another round of record results from commodities trading and Macquarie Capital, analysts remain positive about the outlook for his division expanding banking and financial services.

UBS analyst John Storey said Macquarie was the fastest growing mortgage and wealth management business in the Australian market.

“Based on our earnings, we expect banking and financial services could contribute around 20% to group earnings growth through financial year 2023,” Mr Storey said.

Shawanda H. Saldana