Upcoming Bank Reporting Season - Five Things to Keep in Mind

Reporting Due in November

Three of the four major banks are due to report full-year results in November 2019. Meanwhile, Commonwealth Bank of Australia (ASX: CBA) had disclosed its full-year results in August.

Looking at CBA’s results for the year ended 30 June 2019, it appears the bank has done reasonably well amid slowing economic growth, funding pressure, and the headwinds from Royal Commission.

CBA posted statutory NPAT of $8,571 million, down by 8.1% over the previous corresponding period. The total funding had a composition of 69% from deposits, and its customer remediation costs increased to $2.2 billion from $1.2 billion in the previous year.

More importantly, the bank successfully maintained its dividend paying capability with full-year dividends of $4.31 per share, which were flat compared to the previous year amid increasing remediation costs and lower profit.

Net Interest Margins

Talking about NIMs, the National Bank of Australia Limited (ASX: NAB) has said in its third quarter update (ended 30 June 2019) that NIM increased due to lower short-term wholesale funding costs.

In the half-year ended 31 March 2019, Westpac Banking Corporation (ASX: WBC) has stated that NIMs were down by 12bps, attributing to provisions for customer refunds and higher short-term funding costs.

In the half-year ended 31 March 2019, Australia and New Zealand Banking Group Limited (ASX: ANZ) has reported a NIM of 1.79% compared to 1.93% in March 2018, and 1.82% in September 2018.

ANZ said that the lower margins were due to growth in lower margin markets balance sheet trading activities, higher funding costs, changes in asset mix, asset price competition, and the sale of the Asia Retail and Wealth businesses.


Since the Royal Commission, the major banks have been aggressively divesting businesses to become a better bank with effective operations. As such, corporate restructuring could pay reasonable rewards if done efficiently and strategically. Although, investors need to keep in mind that divestments suppress the revenue streams of any business.

In its interim disclosure, ANZ had parts of its businesses categorised in discontinued operations. In August, the bank had reported that the stake in Cambodian JV was sold, which stood at 55%. In September, the bank came up with news of the sale of its Retail & SME operations in Papua New Guinea. ANZ had completed the sale of its life insurance business in July this year.

Most recently, the bank provided an update on its sale of OnePath Pensions & Investments to IOOF Holdings Limited (ASX: IFL) in which the sales price of transaction was reduced by $125 million. It is expected that the transaction would be completed by the first quarter of 2020.

NAB in its interim disclosure, having sold its life insurance business to Nippon Life in FY 2016, recognised a loss of $210 million in the half-year statement under discontinued operations.

In its interim disclosure, WBC had sold its interest in the Ascalon Capital Managers (Asia) Limited and Ascalon Capital Managers Limited for a combined profit of $3 million. In addition, the bank had also sold its interest in an associate, making a gain of NZD 40 million.

Customer Remediation

In October, ANZ had notified that the second half cash profit would be impacted by an estimate of $559 million (post-tax) due to increased customer remediation costs. During half-year results, the bank had incurred a customer remediation costs that impacted profit after tax by an estimate of $123 million.

In October, NAB had reported that additional charges of $1,180 million after tax related to provision for customer-related remediation, and change to software capitalisation policy. In half-year results, the bank had an after- tax provision of $525 million for customer-related remediation.

In October, WBC also notified about its notable items that included customer remediation and Wealth reset. It was said that the total impact on earnings would be $377 million (post-tax). In addition, the bank had incurred $753 million (post-tax) in the first half, taking the total to $1,130 million (post-tax) in FY 2019.

Capital & Dividends

Dividends have been the long-standing characteristics of the major banks. These stocks usually top the charts when it comes to dividends. It is quite reasonable to note that the three banks would try to maintain attractive dividends.

Notwithstanding, NAB had already lowered its interim dividend this year. Moreover, the full-year dividends paid by the bank had been flat since FY 2015 ended 30 September 2015.

Meanwhile, WBA has also paid flat dividends since FY 2016 that ended 30 September 2016. Its interim dividend in May this year was equal to the dividend declared in the previous corresponding period. Interestingly, the case is similar with ANZ.

Talking about capital, NAB had announced issue USD 1,500,000,000 3.933% subordinated notes in August this year. In May, the bank reported on the issue $1,000,000,000 subordinated floating rate medium term notes.

In August this year, WBC had issued $1,000,000,000 Callable Floating Rate Subordinated Notes.


Investors & market participants must lower their expectations of relatively optimistic results. As there are many reasons that do not appear favourable to banks, including slow economic growth, low interest rates, customer remediation, and divestments.

Highly optimistic expectations or unrealistic expectations only pose additional downside risks to any company’ stock price in cases when the company fails to meet the expectations. However, the banks would return to the normal operational flexibility as the Royal Commission has highlighted the inconsistencies, which would be remediated by the management of these banks.

Moreover, these operational re-alignments would only make the major banks better for the time to come and attractive for the investors.

Stock Performances

On 31 October 2019, NAB last traded at $28.48, down by 1.555% relative to the last close. On a YTD basis, NAB has delivered a return of +23.19%.

On 31 October 2019, ANZ last traded at $26.68, down by 3.473% relative to the last close. On a YTD basis, ANZ has delivered a return of +15.84%.

On 31 October 2019, WBC last traded at $28.105, down by 1.559% relative to the last close. On a YTD basis, the WBC has delivered a return of +16.63%.

One Year Performances to 30 October 2019 (Source: Thomson Reuters)


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