Banks Earn Billions Thanks To Higher Interest Rates
ANZ, NAB and Westpac all reported higher interest income in FY23
2 min
Westpac, ANZ and National Australia Bank have reported their full-year results over the past fortnight, delivering billions in profits and splashing out boosted dividends to their shareholders.
Following 13 interest rate rises from the Reserve Bank since May 2022, all three of the big four banks reported a lift in their net interest income, which is the difference between the interest income they earned on loans less the interest they paid on customers’ savings deposits.
Rising interest rates mean the banks can charge more interest on existing and new loans. But they also have to pay higher interest on their wholesale funding to fund new loans, plus they have to pay a higher interest rate to customers with savings accounts. So, the Reserve Bank’s 13 rate rises did not go wholly and directly to the banks’ bottom lines.
In fact, all three banks reported that their business and institutional divisions produced the best results in FY23 – not their home loan divisions. But this is cold comfort to the millions of Australians whose home loan repayments have gone up exponentially over the past two years.
Here is a review of each bank’s full-year results for the 12 months ending 30 September.
Westpac
Westpac reported a 7% increase in net interest income to $18,317 million and a 26% increase in statutory net profit after tax (NPAT) to $7,195 million. The bank declared a final fully franked dividend of 72 cents per share, bringing its full-year dividend to 142 cents per share, up 14% on FY22. Westpac also announced a $1.5 billion share buyback.
National Australia Bank
NAB reported a 13.2% increase in net interest income to $16,807 million and a 7.6% boost to NPAT at $7.414 million. The bank announced a fully franked final dividend of 84 cents per share, which brought its full-year dividend to 167 cents per share, up 11% on FY22.
ANZ
ANZ reported net interest income of $16,581 million, up 11%, and statutory NPAT of $7,098 million, down 0.3%. The bank declared a final dividend of 94 cents per share, comprising 81 cents with 65% franking and a one-off unfranked dividend of 13 cents. This brought its full-year dividend to 175 cents per share, up 20% on FY22.
The Commonwealth Bank reports on a different cycle to the three smaller players within Australia’s ‘big four’.
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New research suggests spending 40 percent of household income on loan repayments is the new normal
3 min
Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.
Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.
“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.
CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.
Sydney
Sydney’s median house price is $1,414,229 and the median unit price is $839,344.
Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.
Melbourne
Melbourne’s median house price is $935,049 and the median apartment price is $612,906.
Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.
Brisbane
Brisbane’s median house price is $909,988 and the median unit price is $587,793.
Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.
Adelaide
Adelaide’s median house price is $785,971 and the median apartment price is $504,799.
Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.
Perth
Perth’s median house price is $735,276 and the median unit price is $495,360.
Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.
Hobart
Hobart’s median house price is $692,951 and the median apartment price is $522,258.
Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.
Darwin
Darwin’s median house price is $573,498 and the median unit price is $367,716.
Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.
Canberra
Canberra’s median house price is $964,136 and the median apartment price is $585,057.
Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.
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