The big four banks are expected to rake in billions in profits as thousands of everyday Australians struggle with the rising financial demands of their mortgages.
Commonwealth Bank (CBA), Westpac, NAB, and ANZ are tipped to post a combined $28.4 billion in annual cash profit this financial year as rising interest rates boost their loan income.
CBA ranked first in terms of profit after releasing its year-end report on June 30, with its cash flow up 11%, bringing in $9.6 billion in the past 12 months, news.com.au reported.
And although the rest of the big four banks have yet to release figures for their full-year profits for this financial year, their joint earnings were estimated to be at around $18.8 billion, with NAB expected to bring in around $7.1bn, and ANZ and Westpac estimated to report $6.3 billion and $5.4 billion, respectively.
Banks are expected to post billions in profit amid rising costs partly because mortgage rates are rising faster than the rates of savings and deposits, leading to a wider net interest margin.
“In a rising interest rate environment, deposit rates are going up at a slower rate than mortgage rates,” AMP economist Shane Oliver told news.com.au.
The property boom which ended earlier this year was also another factor, Oliver said, causing the rapid growth for mortgages and bigger profit margins.
“That’s not necessarily going to last; there’s a bit of a lag there at the moment,” Oliver said. “The risk is that the banks will slow down like other parts of the economy as interest rates rise, especially if economic activity declines, unemployment rises, or we go into recession.”
Many Australians were already struggling with the rising costs of home loans, yet the banks are tipped to continue to raise interest rates in the coming months.
“I suspect that they may use some of their profitability for some customers who run into financial difficulty, but it’s hard to see them not raising interest rates in line with the RBA,” Oliver told news.com.au.
Sally Tindall, RateCity‘s research director, said there’s still hope for variable rate customers despite the rising interest rates.
“Yes, rates are on the rise and yes, the banks are passing on the full rate hikes to variable customers, but the competition is still hot,” Tindall said. “But the competition is for customers who are proactive in looking for the best deal.”
Tindall said refinancing is the way to go for borrowers looking to make the most of the competitive market.
“As a result of all this activity, it forces banks to be competitive but only for new customers, and this is something we expect to continue,” she told news.com.au.
