Australian banks' full-year cash net profits are forecast to be resilient but also revealing some "sluggish" revenue outlooks ahead in the face of a weak lending growth and rising borrowing costs.
A shift from higher risk household lending, including rural and residential, is expected to be replaced by less-riskier lending to the corporate sector, Craigs Investment Partners broker Peter McIntyre said.
"The strength and resilience in the banking system will be shown in these results; but they have only got there by working overtime to get deposits in and then lend out to the corporate sector," he said.
Forsyth Barr broker Peter Young said the Australian banks were "relatively unscathed" from the financial crisis and good shape, expecting modest credit growth at high returns.
However, he expected a weaker underlying performance during the second half of 2010, with further reductions in impairment charges.
"It's a pessimistic outlook, particularly on funding pressures impeding margins, and with a delayed return to business lending," Mr Young said.
Mr McIntyre said the banks were operating in a very competitive environment at present, but also playing a big part in some improved results will be last year's provisioning for bad and doubtful debts, which did not materialise.
"Banks are being careful in lending to mum-and-dads.
"Corporate is the new hunting ground, because they were the ones unable to get enough funding during the global financial crisis," Mr McIntyre said.
Banks were having to offer higher term deposit interest rates to attract customers, which squeezed margins, and conversely, banks' borrowing from the retail sector was more costly and they were having to discount on fees to secure more work from the corporate sector.
"There's higher funding costs to be absorbed and margins are being eroded by the fee discounting," he said.
"We're expecting revenue growth to be sluggish, with subdued lending growth, margin pressures and impact from fee discounting to be the main the drags," Mr McIntyre said in general of the second-half results due from the banks.
The full-year results of the three banks are due for release out from today until next Wednesday and coincide with the Reserve Bank of New Zealand releasing home loan approvals data.
For each of the three weeks since October 1, the number of New Zealand home loan approvals has fallen below 5000 per week.
That is estimated to be down 25% when comparing the previous 13 weeks to the same period last year.
The weekly spending during the three-week period ranged from $614.7 million to $646.1 million, but for the 13-week comparison period it was estimated down almost 27% on the same period last year.
The Reserve Bank noted the flow of approvals was "likely" to have been negatively affected by the Canterbury earthquake on September 4.
The Reserve Bank is tomorrow expected keep the interest-driving official cash rate at 3% and some analysts believe it could stay at that level until March next year.
