An expected slowdown in the rate of home loans sought in 2004 could eat into the bumper profits reported by the four major Australian banks this year.
Analysis by PricewaterhouseCoopers indicated aggregate underlying profits of the banks were up 6.6 per cent on last year in 2002/03.
National Australia Bank (NAB) posted a $3.955 billion net profit for the year to September 30, 2003, up 17 per cent.
The big four banks, NAB, ANZ, Commonwealth and Westpac made $10.498 billion between them in 2002/03.
PricewaterhouseCoopers has calculated that the major banks grew their home loan portfolios by a combined 16.3 per cent last financial year.
Net interest income growth was 5.5 per cent on aggregate as a result.
PricewaterhouseCoopers banking and capital markets leader Michael Codling said the tougher emerging credit environment could be one reason bank executives have been wary about predicting levels of earnings growth for 2003/04.
“The reality is we expect an easing in credit growth, particularly in the housing loan market which has contributed significantly to banking profits, as well as a reduction in credit card revenue as a result of system reforms,” he said.
“Intensified competition could also bring further pressure on margins.
“On the positive side, the favourable global outlook is expected to lead to an upswing in business confidence and investment and therefore business lending, plus improved inflows to funds management products are expected to continue.”
Financial services leader Rahoul Chowdry said the consumer portfolios of banks will be tested – despite low unemployment – due to expected interest rate rises and high levels of debt-laden households.
Following the ANZ's recent takeover of the National Bank of New Zealand said merger and acquisition in the bank industry is sure to continue in 2004, he said.
The PricewaterhouseCoopers report found that the big banks' attention on building non-risk sources of income resulted in a solid rise in their traditional banking non-interest income in 2002/03.
Fees and commissions were up 7.5 per cent driven by new fee structures on consumer products, increased transaction levels, including in credit cards, and increased corporate and institutional demand for structured products, the report said.