Between them, three of Australia's big four banks are expected to have raked in close to $11 billion in the space of six months as they continued to reap the benefits of a booming housing market.
But with the Australian Prudential Regulatory Authority considering implementing a cap on lending growth and forcing the banks to lift the amount of capital they hold against loans, investors are questioning whether the good times will continue.
ANZ, National Australia Bank and Westpac will release their half year results next week, with analysts forecasting solid, if not spectacular, numbers all round.
Deutsche Bank expects the three banks to grow their underlying earnings by around three per cent.
It expects Westpac to post cash earnings of around $3.84 billion, and forecast a $3.69 billion result for ANZ and a $3.33 billion result for National Australia Bank.
Fellow "big four" bank the Commonwealth in February announced a half year cash profit of $4.62 billion in February.
The banks have been bolstered in recent years by record low interest rates, which have fuelled growth in the property market, especially in Sydney where prices have climbed 14.5 per cent in the past year.
Analysts Andrew Trigg and James Wang say the results will likely show continued strong lending growth, offset in part by lower profit margins due to the strong competition for loans.
"We expect the results will be driven by solid lending growth in retail and
business, modest group margin decline driven by lower institutional margin
and improving markets income with FX and rates volatility driving stronger
customer flows," they said in a research note.
But the big four's share prices have come under pressure in the past week due to reduced expectations of an interest rate cut in May as well as fears about APRA's plans for the sector.
At a speech this week APRA chairman Wayne Byres indicated the regulator could act "sooner rather than later" on a recommendation from the recent Financial System Inquiry to lift capital reserve ratios for the major banks.
That move would hurt returns on loans and even the playing field with smaller lenders, leading to greater competition in the mortgage market.
Meanwhile APRA has also set a target limit of 10 per cent on annual growth in loans to property investors in an effort to rein in speculation in the housing market and there are concerns the regulator may start taking action against banks that breach the target.
Despite those possible headwinds, optionsXpress market analyst Ben Le Brun said investors are likely to continue piling into the big four banks in search of dividends.
"There may be some cyclical headwinds in front of them moving out into the future, in terms of capital adequacy ratios and tougher lending criteria," he said.
"But a lot of that will be offset by the insatiable hunt for yield from investors, especially if we see another rate cut."
The banks have outperformed the Australian share market in recent years as low interest rates forced conservative investors to shift their money away from safer assets like term deposits and bonds and towards equities in search of better returns.
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