The big four banks are expected to rake in billions in profits as everyday Aussies battle with rising interest rates.
Commonwealth Bank (CBA), Westpac, NAB and ANZ are expected to post a combined annual cash profit of around $28.4bn this financial year as interest rate hikes boost their loan income.
CBA leads the pack in terms of profit after releasing its year-end report on June 30, with an 11 per cent boost to its cash flow bringing in $9.6bn in the past 12 months.
Though ANZ, Westpac and NAB have yet to release figures for their full-year profits for this financial year, consensus estimates put their joint earnings at around $18.8bn.
NAB is expected to bring in around $7.1bn, while ANZ and Westpac are estimated to report $6.3bn and $5.4bn respectively.
Part of the reason the banks are expected to report billions in profit amid rising costs is mortgage rates are increasing faster than the rates on 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 said.
Another factor, Mr Oliver says, is housing finance has been running at record levels up until recently, with the property boom which ended earlier this year causing 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,” Mr 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.”
Despite many Australians already struggling with the increasing costs of paying off their home loans, the banks are expected to continue to hike up 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,” Mr Oliver said.
Though mortgage rates are on the rise, there is still hope for variable rate customers, according to RateCity‘s research director, Sally Tindall.
“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,” Ms Tindall said.
“But the competition is for customers who are proactive in looking for the best deal.”
For those looking to make the most of the competitive market, refinancing is the way to go, according to Ms Tindall.
“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.”
There‘s also good news for Australians who don’t have a home loan but who want a high return on their savings.
Smaller banks tend to outperform the big four when it comes to saver rates, according to RateCity, with ANZ giving customers a maximum rate of 1.65 per cent compared to ING‘s rate of 3.60 per cent.