“Low interest rates have been offset by a flood of cheap customer deposits and access to the TFF, but that tailwind is running its course,” Nathan Zaia, an equity analyst at Morningstar, told S&P Global. “All banks indicated that margins will be under pressure in the next 12 months, especially if the demand for fixed-rate loans remains so high.”
When it reported its full-year results last week, Commonwealth Bank said it expects “a series of headwinds to hit the NIM group in the next financial year.” CBA cited the continued low-rate environment, increased competition, customers shifting to fixed-rate mortgages and higher deposit rates as factors that would affect its net interest margin. The bank’s NIM fell to 2.03% in the fiscal year ending June 30, from 2.07% a year earlier, according to S&P Global.
Westpac, which follows a different fiscal calendar, said in its third-quarter business update Tuesday that its NIM in the second fiscal half could be lower than the first. Westpac previously reported that the NIM in the first half, which ended March 31, was 2.06%, down from 2.21% a year earlier. Westpac’s earnings still rose thanks to TFF support despite falling margins, S&P Global reported.
Banks still have strong balance sheets. CBA plans to buy back up to $ 6 billion in shares. ANZ and NAB have offered to buy back $ 1.5 billion and $ 2.5 billion in shares, respectively. Westpac said it would consider a return of capital, with an update to its full-year results, S&P Global reported.