Can ASX 200 banks live up to the $11 billion ‘big expectation’ when they report this month?

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.

It’s nearly reporting time for many of the large S&P/ASX 200 Index (ASX: XJO) bank shares.

Banks that are scheduled to release their half-year results soon include Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC).

Commonwealth Bank of Australia (ASX: CBA) is expected to release its FY22 third-quarter numbers while Macquarie Group Ltd (ASX: MQG) is scheduled to announce its full-year report.

According to reporting by The Age, investors are expecting ANZ to report cash net profit after tax (NPAT) of $3 billion. Westpac is expected to show it generated $2.8 billion of net profit. NAB is predicted to generate a net profit of $3.4 billion.

CBA’s quarterly net profit is expected to be $2.1 billion of net profit.

Macquarie is expected to make a full-year profit of around $4.5 billion.

Can the ASX 200 bank shares generate these profits?

In recent times, the banks have been reporting a decline in profitability, with a drop in the net interest margin (NIM).

For example, in the CBA FY22 half-year result, it said that its NIM declined by 17 basis results from the second half of FY21 to 1.92%. CBA said that excluding the impact from increased lower-yielding liquid assets, the bank’s NIM decreased five basis points due to “increased switching to lower margin fixed home loans, the impact of the rising swap rates due to market expectations of higher interest rates and continued pressure from home loan competition”.

The Age reported on commentary from Andrew Martin from Alphinity, who said that rising interest rates would help banks because lending rates would increase faster than the savings interest rate. Martin suggested that investors would want to hear what the impact of rising rates will mean for bank profitability.

However, it may not be that escalating rates turn into bigger profits for the ASX 200 bank shares.

Investors Mutual portfolio manager Michael O’Neill suggests that the competition in the lending sector could continue to weigh on profitability, according to The Age:

It feels like there’s going to be more margin pressure than expected, particularly because of the competition offsetting those funding benefits.

If you’re assuming material earnings growth from the banks, I think you will be somewhat disappointed.

Dividend expectations

The banks that are about to report key results are predicted to pay sizeable dividends.

The Age reported that consensus estimates suggest ANZ is going to pay an interim dividend of 72 cents, that NAB will pay a dividend of 71 cents per share and that Westpac will pay an interim dividend of 59 cents per share.

Macquarie’s final dividend is expected to be $3.69 per share.

ASX 200 bank share valuations

According to Commsec, these are the following forward price/earnings (P/E) ratios for the big ASX 200 bank shares:

The ANZ share price is valued at 13 times FY22’s estimated earnings.

The Westpac share price is valued at 15 times FY22’s estimated earnings.

The NAB share price is valued at 16 times FY22’s estimated earnings.

The CBA share price is valued at 20 times FY22’s estimated earnings.

The Macquarie share price is valued at 18 times FY22’s estimated earnings.

The post Can ASX 200 banks live up to the $11 billion ‘big expectation’ when they report this month? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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