$900m bonus: Investors bet on bank profits rising from rate hikes

“The banks will keep holding money in transaction accounts and pay nothing for it, but they will be earning a higher return on it,” Mr Nathan said.

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Morgan Stanley analyst Richard Wiles has estimated the combined profits of Westpac, ANZ, CBA, NAB, Bendigo and Adelaide Bank and Bank of Queensland would rise by more than $885 million in 2023 following a 0.25 percentage point move in the RBA’s cash rate.

Mr Wiles found the banks’ combined earnings would rise by a further $296 million if rates on low-cost savings accounts, such as online savings products, increased by 0.1 percentage points less than the RBA.

Macquarie analysts, meanwhile, have estimated the major banks could stand to gain an extra $1.3 to $1.7 billion each in revenue by 2024 if interest rates rise by 1 percentage point.

Jefferies analyst Brian Johnson said last week the outlook for bank net interest margins was starting to turn positive, arguing CBA was the best “inflation play” on the ASX200 given its $170 billion in low-rate deposits.

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“As rising inflation pressures are problematic for many industrial companies with weak pricing power, Australian banks stand out as inflationary beneficiaries and are now outperforming,” the note said.

However, others are unconvinced, with Citi analyst Brendan Sproules saying the benefits of higher interest rates would be “blunted” because banks would face pressure to keep providing cheap mortgages, as long-term funding costs rose.

The ASX200 index is down by about 4.8 per cent in 2022, but most banks are higher over this period, led by Westpac, which is up 8.7 per cent, and Bendigo and Adelaide Bank, up 9.1 per cent. CBA is the exception and has fallen by about the same as the market.

Atlas Funds Management chief investment officer Hugh Dive said the “thesis” of banks benefiting from higher rates was one reason banks’ shares had outperformed, though he thought cost-cutting was a more immediate benefit to profitability.

“Every other time we’ve gone through a rising rate environment, banks are very slow to move term deposits, but very fast to move mortgage rates up,” he said.

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