The Big Four Banks Are Expected to Disappoint Investors: Have You Done Reshuffling?

The Australian markets are witnessing the negative impacts from the global macroeconomic factors and the lower expectations from the banking sector is one of the primary reasons responsible. The banking sector are facing the regulatory challenges and hence this could hamper their financial performance moving forward. It seems like the time has come for the market participants to reshuffle their portfolio holdings as the big banks in Australia are expected to disappoint the market players. The primary reasons that the market watchers are expecting this are the lower housing prices, tighter lending facilities and, last but not the least, the Royal Commission impact.

The investors are expecting that lower profit margins coupled with the elevated compensation expenses are likely to negatively impact the financial numbers of the big four banks operating in the Australian banking space. Not only this, the market trackers are expecting weaker growth outlook on the major banks namely, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Limited (ASX: ANZ), Westpac Banking Corporation (ASX: WBC) and National Australian Bank (ASX: NAB). Of the total four banks, three would be coming out with their full year 2018 results soon and they are expected to record lower financial numbers on the YoY basis on the back of subdued credit growth and Royal Commission’s interim report.Â

The subdued growth is expected because the major banks are likely to face compensation expenses as well as other related costs because of the Royal Commission. The net interest margins or NIMs are expected to get negatively impacted because of the increased wholesale funding costs. While these costs are likely to impact the margins, non-recurring expenses to the customers would adversely affect the expenses of the banks.

However, Commonwealth Bank of Australia, Westpac Banking Corporation as well as Australia and New Zealand Banking Group have increased their rates recently. The impact of the increased rates would not be factored in the results which are soon to be announced. Apart from the financial sector, the housing market is facing a strong decline in the prices. Moreover, increased restrictions on the lending activities have also led to the decreased borrowing for the Australian people leaving them with lower liquidity.

Australia and New Zealand Banking Group is expected to post a profit amounting to approximately $6.2 billion which reflects a marginal decline YoY (year-over-year) as it is likely to incur charges in regard to the remediation as well as other impairments. However, Westpac Banking Corporation is expected to report profits of approximately $8 billion and the expectations are that it might not change its final dividend which is 94 cents per share.

At the time of writing, Commonwealth Bank of Australia is trading at A$66.645 per share while National Australia Bank has a share price of A$25.020 per share. However, Australia and New Zealand Banking Group and Westpac Banking Corporation are trading at A$25.235 and A$26.275 per share, respectively.

Westpac Banking Corporation is presently trading in its lower range and has a market capitalization of $89.17 billion.


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