Amid the uproar over banks' profits during the recession, New Zealand's big-four Australian-owned banks are being picked to increase profits over three years by up to 30%.
While mortgagee sales and business collapses are running near or above record levels, banks have come in for stinging criticism over commercial and mortgage interest rate levels, foreclosures, management salaries and booking massive profits as customers struggle with the recession.
Research for broking firm Craigs Investment Partners says the big four banks are each estimated to have provision utilisation, or funds available to cover bad loans, of up to $A3 billion ($NZ3.77 billion) each.
Those provisions are expected to be the biggest contributors to banks' earnings growth during the next three years as alongside the improving economy and less bad-loan writeoffs each individual bank's profitability could be boosted by $A1.7 billion.
In 2011 alone, the entire banking sector was forecast to increase overall profitability by a collective $A4.5 billion from the loan provisioning, the research forecast.
Craigs broker Peter McIntyre said the big four banks had ended up in a stronger position from several areas, including government guarantees and bail-outs, shareholder issues and cash injections and also the demise of competitors such as smaller banking institutions and finance companies.
"They have been able to capitalise on the destruction within the finance sector, which will only provide them with bigger profits," Mr McIntyre said.
At the upper end of the 10%-30% upgrades are National Australia Bank and ANZ, which are considered more favourable because of their geographic growth strategies, with the ANZ focusing on Asia and National Australia on Europe.
"With the likelihood of a economic upturn ahead, the banks won't have to use these provisions, which will reflect well on their bottom line," Mr McIntyre said.
Globally, 13 governments in total have since the financial crisis began made $US3.3 trillion available in guarantees, $US2.7 trillion in stimulus packages and $US6.6 trillion in outright bail-outs.
In that period, the Australian Government has delivered $US550 billion available in guarantees, $US57 million in stimulus packages and $US6 billion in bail-outs.
"As a result of some relatively quick moves by international governments, the level of systemic risk priced into markets, such as for defaults, appears to be abating," the research said.
Mr McIntyre said the combination of improving credit growth and more stable profit margins would probably drive banks' earning growth at about 15% per year.
Subsequently, Craigs has revised its target prices for the banks up 15%-30%, with "buy" recommendations on ANZ and National Australia stocks being the "preferred recovery plays", while Commonwealth and Westpac as respectively third and fourth ranked have "hold" recommendations, but positive outlooks.
> Mr McIntyre's financial disclosure document is available on request.
