ANZ will kick off what is expected to be a solid round of bank earnings over the next week, with investors eager for clues on how long the blue skies over the sector can last.
ANZ is tipped to unveil a first-half cash profit of about $3.79 billion - up more than 30 per cent on last year's writedown-heavy $2.8 billion - thanks to a strong performance by its retail unit, tight cost control and a sharp drop in bad and doubtful debt charges already flagged in its first-quarter trading update.
National Australia Bank and Westpac are also expected to announce larger profits over the coming days but, with financial stocks having gained more than 20 per cent in the past six months, the market appears to have already priced that in.
"Investors are anticipating solid results supported by low bad debt provisions and cost control," CMC Markets chief market analyst Michael McCarthy said.
"Yield investors continue to see banks as a relatively stable income proposition in the near term."
The results will be the first since the Australian Prudential Regulatory Authority introduced new restrictions on the amount banks can lend in the form of interest-only loans.
Banks lifted interest-only and investor rates as a result of APRA's intervention and, while that could have a positive impact in the second half, banks could face earnings pressure in the longer term if the moves successfully reduce home loan demand from investors.
UBS banking analyst Jon Mott says that, while the banks have enjoyed a purple patch over the past six months, APRA's limit on interest-only lending and hints of further increases to housing risk weights will have a bigger impact than many expect.
"The impact of this is likely to be decelerating credit growth to low single digit levels in FY18/19," Mr Mott wrote in a note.
"Additional mortgage repricing is highly likely."
ANZ lifted rates on some interest-only loans at the end of last week, with the impact to be seen in its full-year results.
Mr Mott has forecast a $3.31 billion cash profit for NAB when it reports on Thursday and $3.98 for Westpac next Monday.
Commonwealth Bank, which announced a 2.1 per cent lift in half-year profit to $4.91 billion back in February, will release a third-quarter trading update on May 9.
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