As Australian homeowners face further interest rate pain and rising inflation due to the Middle East conflict, major banks are fortifying their defences. ANZ, National Australia Bank (NAB), and Westpac are set to report their interim results from Friday, and while the news is expected to be solid, less optimistic days may lie ahead.
Earnings Period and Geopolitical Impact
This set of banking earnings covers the six months ending March 31, a period that includes the US-Israeli conflict with Iran that began in February, triggering a significant surge in energy costs. Since then, banks have had to navigate market volatility driven by Donald Trump and establish buffers for a potential rise in bad debts among customers grappling with increasing living costs and impending lending rate hikes.
Credit Impairment and Earnings Warnings
NAB has already cautioned that its first-half results will include $706 million in credit impairment charges. Westpac has warned that geopolitical uncertainty and associated market volatility have negatively impacted its earnings. Fidelity International's Australian analyst and portfolio manager, Zara Lyons, told AAP that these results would likely be strong in terms of business credit and mortgage growth.
“It is a bit of a mixed bag, but I would have said, had we not had the energy situation, that the banks had been in very good health coming into this period,” she said. “The outlook is looking a little less shiny than it did. But I still think that they are very resilient and should be able to navigate this world.”
Double-Edged Sword of Higher Rates
Josh Gilbert, lead Australia-Pacific market analyst for eToro, noted that the Reserve Bank’s consecutive rate hikes in 2026 were, on paper, a tailwind for bank margins. “But higher rates are a double-edged sword—they lift margins on one side of the ledger while squeezing borrowers on the other, and that is where the pressure starts to build on provisioning and credit quality,” he said.
Bank watchers will focus on how much banks allocate to provisioning—buffers set aside for anticipated losses. “If the banks are leaning in hard, that is management signalling what they are seeing in the household and business book,” Mr Gilbert added. They will also scrutinise net interest margins, a key profitability measure, and capital returns. Westpac, he noted, holds surplus capital and the largest pile of franking credits in the sector, making a special dividend a strong possibility.
Market Expectations and Upcoming Reports
“The results, as ever, will be important, but what management says about the road ahead will likely matter more,” Mr Gilbert added. “The market is clearly bracing for cautious tones across the sector.” ANZ will lead with its results on Friday after posting a $1.94 billion cash profit in the first quarter, followed by NAB ($2.02 billion) on May 4, and Westpac ($1.9 billion) on May 5. Commonwealth Bank will issue its third-quarter update on May 13.
