Aussie banks balance above topsy-turvy economy

MELBOURNE: Australia's banks have emerged quickly from the country's first recession in almost three decades. ANZ, the last of the biggest four lenders to report, posted A$1.8 billion ($1.4 billion) of earnings in the three months to the end of December, 54% higher than the prior two quarters' average.

The Melbourne-based bank and peers look well-placed to deal with pain in the pipeline too.

Mortgage applications in December were 31% higher than a year earlier. Building approvals are at a 19-year high. Unemployment has retreated to 6.6% from its pandemic peak of 7.5%. Job ads have risen to a level not seen since April 2019.

That's grist for the banking mill, bolstering fees and propping up interest-income margins. The latter improved a tad at ANZ and Westpac, and dropped only slightly at National Australia Bank and Commonwealth Bank of Australia. The recovery allowed all four institutions to free up cash reserves set aside to cover potential problem loans.

There are reasons to be cautious about the longevity of the recovery, however. Unemployment is higher than it was before the coronavirus hit, and Reserve Bank of Australia Governor Philip Lowe is concerned that many employees are not working as many hours as before.

Australia's borders are likely to remain largely closed to foreigners until at least the rest of the year, crimping recovery in sectors like tourism and education.

Meanwhile, lenders' earnings can't remain permanently immune to the central bank's ultra-low interest-rate policy, which Lowe expects to hold until at least 2024. Assistance programmes like repayment deferrals and the federal government's Jobseeker payments are winding down. NAB boss Ross McEwan noted on Tuesday that asset quality has started to slip.

The housing boom, for its part, is at risk of overheating; prices have hit record levels, according to research firm CoreLogic.