Banks cash in on RBA interest rate hikes as customers grapple with rising repayments

On Friday, ANZ unveiled a record six-month cash profit of $3.8bn, underpinned by a string of interest rate hikes, for the reporting period to the end of March. It represented a 23% lift from a year ago, a period which notably did not include any increases in the official cash rate.

The results resembled those posted a day earlier by National Australia Bank, which recorded a 17% surge in six-month profit to $4.07bn.

Deposits are crucial for banks, given they are the main funding source to underpin loans to other customers and for investments.

Investment bank Macquarie Group also recorded a bumper profit on Friday of $5.2bn over a 12-month period. Unlike the big four retail banks, it generates the bulk of its profits in international markets, although it has been growing its Australian mortgage book.

The financial reporting period overlaps with the rapid-fire cash rate increases by the Reserve Bank that have lifted rates 11 times since May last year to 3.85%.

Home, investment and business owners grappling with rising loan repayments have also contended with inflation-fuelled price increases for everything from groceries to electricity and food bills during that period.

While ANZ and NAB have reported modest levels of bad debts, the growing financial pressures are yet to be realised.

ANZ said more than one-quarter of customers had not been assessed to make repayments at current levels.

When making a loan, banks use a serviceability buffer to help determine borrowing capacity. That buffer has been between 2.5 to 3.0 percentage points above the prevailing lending rate in recent years; a level that rate hikes quickly shot through.

This has raised fears that a wave of defaults could hit the market next year if repayments continue to climb.

Shares in ANZ dropped in early trading on Friday after its results were released, before staging a recovery. NAB stock fell more than 6% shortly after it released its results on Thursday morning, dragging other bank stocks lower.