Australian banks in record profit but outlook downbeat

[SYDNEY] Westpac Banking Corp rounded off a sixth straight year of record profits for Australia's major banks, although rising bad debt charges and margin pressure are clouding the outlook for one of the world's most profitable banking sectors.

Australia's four big banks delivered combined annual cash earnings of A$30 billion (S$30 billion) after Westpac, the No.3 lender by assets, on Monday posted a 3 per cent rise in annual cash profit to a record A$7.8 billion helped by mortgage growth.

But Westpac, National Australia Bank, ANZ Banking Corp and Commonwealth Bank of Australia are now preparing for their slowest earnings growth since the global financial crisis amid record low interest rates, a cooling economy and stifling competition that sent lending margins to an all-time low of 2.02 per cent. "Slowing growth and declining returns are a clear signal that we've reached the end of the banks' golden era," said Tim Dring, accounting firm EY's Oceania Banking and Capital Markets Leader, in a report on Monday.

Westpac CEO Brian Hartzer warned of a "lower-for-longer environment with modest credit growth, intense competition and ongoing regulatory uncertainty.

Return on equity at the "Big Four" has dropped to 15 per cent from 15.5 per cent, consultancy KPMG said in a report on Monday, as regulators demand more cash be set aside against loan books amid fears of a housing bubble in Sydney and Melbourne.

NAB and ANZ both missed expectations when they posted record cash profits last month. CBA follows a June-ending calendar year.

The four have together raised over A$20 billion since May to comply with tough new capital rules.

Last month, Westpac said it would raise A$3.5 billion and became the first lender to push home loan rates higher to protect profits and shareholder value.

Other banks followed suit, sparking anger from borrowers and prompting Prime Minister Malcolm Turnbull to warn in a radio interview last week that the banks had "overdone it".

Bank shares have underperformed the broader market so far this year. Westpac shares are down about 5 per cent this year to Friday's close compared with a 3 per cent drop in the benchmark index.

On Monday, they were off 2.2 per cent while S&P/ASX 200 fell 1.2 per cent. Other banks were down 1.5-2 per cent.

REUTERS