Australian Banks: Strong H1 2023 Results On Net Interest Income Growth; Asset Quality Remains Sound

DBRS Morningstar has published a commentary discussing large Australian banks’ recent H1 2023 results, including Australia and New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking Corporation.

Key points include:

• The three large Australian banks reported solid results in the first half of 2023 primarily driven by strong net interest income growth on the back of higher interest rates and solid new lending volume growth.

• Credit costs increased for all three banks year-on-year but still remain at historical low levels.

• Asset quality remained strong for the three Australian banks at end-March 2023. However, there have been some early signs of asset quality deterioration since end-FY2022, largely in the form of higher Stage 2 loans and a slight uptick in Stage 3 loans, although the latter still remain below pandemic levels.

“For the second half of 2023, we expect Australian Banks to continue to benefit from the higher interest rate environment although we recognize that the benefit is likely to be less visible, mainly due to potential headwinds in the cost of deposits and wholesale funding as well as fierce mortgage lending competition,” notes Maria Rivas, Senior Vice President, Global FIG at DBRS Morningstar. “In addition, we expect asset quality to marginally deteriorate, which could potentially require higher provisions, as some borrowers will inevitably experience pressure from higher interest rates, persistent inflation and higher cost of living.”