Australian banks set for boom as bad loans are reined in

Substantial build-up of reserves - in anticipation of a much more severe economic downturn - puts them in good position to withstand future increases in bad debts

Australian banks set for boom as bad loans are reined in
Australia's banks have been helped by the economy emerging from recession and all signs are that 2021 has started on a firm footing helped by massive monetary and fiscal stimulus. File photo collage by Reuters.

(ATF) Three of Australia's four biggest banks are set to unveil bumper profits this year as the economy recovers from the Covid-19 pandemic and the lenders rein in bad debts.

On Monday, Westpac Banking Corp will kick off earnings where writebacks for loan provisioning will help drive cash earnings for the six months to March 31 to about A$3.28 billion ($2.56 billion), economists say.

That will be more than triple its interim cash profit a year earlier.

Australia and New Zealand Banking Group (ANZ) is due to report on Wednesday, with analysts expecting a more than doubling of its interim profit to A$3.19 billion.

National Australia Bank (NAB) will follow on Thursday, with interim earnings expected to surge to A$3 billion, also more than doubling from the previous year.

Australian banks' substantial build-up of loan loss reserves in 2020 - in anticipation of a much more severe economic downturn - puts them in a good position to withstand future increases in non performing loans (NPLs), Moody's Investors Service said.

"Their provisions will remain robust even if the sector releases more reserves in the coming months," the rating agency said.

ANZ chief executive Shayne Elliott recently noted that Australian banks have much stronger capital levels and earnings potential than most international rivals.

Australia's economy has emerged from recession and all signs are that 2021 has started on a firm footing helped by massive monetary and fiscal stimulus.

The government's virus containment efforts, soaring house prices and improved job market have helped to boost consumer confidence and spending.

The profit recovery at Westpac, Australia's second-largest bank, will likely be accompanied by a 86% hike in promised dividends to 58 cents per share, according to an average forecast of six analysts.

Expectations are for NAB to declare a 56 cents per share interim dividend, up from 30 cents per share last year. ANZ is expected to promise shareholders 63 cents per share, versus an interim of 25 cents last year.

Commonwealth Bank of Australia, the country's largest, has a different fiscal calendar but earlier this month said that higher home loan sales would boost its mortgage profit by about 3%.

With reporting by Reuters

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Australia banking financial institutions bad loans profits CBA NAB Westpac ANZ