Australian banks brace for lower earnings as costs, competition bite

- Australia's biggest banks are expected to report lower annual earnings next week, with investors focused on whether intense competition in lending and the rising costs of deposits will outweigh gains in mortgage revenues.

"The banks hold large loan loss provisions to cover rising defaults, and borrowers struggling to service loans are remedying their financial situation by selling into a strong housing market," advisory firm Morningstar wrote in a client note. As mortgage repayments rise, borrowers face greater difficulty qualifying for new loans or credit due to the impact on their debt-to-income ratio, a crucial metric for lenders assessing borrowing capacity.

Citi analysts anticipate challenges for ANZ's institutional bank as it faces"the negative impact from offshore rate cuts before more domestically focused peers".

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Australian labour market also surprises positivelyThis morning, the Australian employment report joined the ranks of countries that have recently reported surprisingly strong figures, Commerzbank’s FX analyst Michael Pfister notes.
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