The five major Australian banks have shown resilience in the face of a global credit squeeze and reported combined cash earnings growth of 14.7 per cent in fiscal 2007, an industry survey found.
The PricewaterhouseCoopers (PwC) survey also predicts the major banks' underlying cash earnings will grow 11.2 per cent in the current financial year.
The study comes just hours after the last of the big Australian banks, National Australia Bank, reported a 4.2 per cent rise in net profit to $4.6 billion.
Mike Codling, PwC's banking and capital markets leader, said the big banks had side stepped the credit crunch.
"They haven't been exposed to any direct credit losses and because of their diverse funding base they haven't suffered much from the liquidity squeeze," he said.
In fact the major banks had worked themselves into a "sweet spot" by absorbing additional funding costs and keeping variable home loan interest rates on hold to win market share from smaller banks and non-banks, he said.
The major banks had also benefited from an uptick in deposits in a flight to quality, the PwC study concluded.
Recent volatility has seen investors fleeing equity markets, opting instead for the certainty and security of savings accounts with the larger banks, it said.
Mr Codling said the main driver of the banks' results in fiscal 2007 was the growth in lending volumes.
"Business lending has been a stand-out on the back of a very strong economy, with system growth at 23 per cent which we haven't seen for almost 20 years," he said.
Volume growth was partly offset by continuing margin compression, which was down by 10 basis points across the major banks.
Mr Codling said the continued decline in interest margins was largely due to the intense competition.
"But in the last few months the credit crunch has undoubtedly impacted the margins by driving up the cost of wholesale funding," he said.
However Mr Codling warned the credit environment was likely to turn down over the current year after a long benign period.
After rising interest rates and costs were weighed against full employment and a strong economy, it seemed likely credit losses would increase, he said.
"However they are coming off a very low base and what we'll likely see is a return towards more normal long-run averages.
"There are plenty of threats but there are also plenty of opportunities. I'd back the banks to have another strong year."
Source: AAP
