WBC today reported an 8% increase in cash eps for 1H08 although that result was slightly below 2H07. Not bad given the tough credit environment, business growth was strong across the board. However as predicted months ago, as the credit cycle turns bad loans will ratchet up and growth will slow.
Whilst nowhere near the levels of ANZ's loan loss provisions for the first half, WBC has upped their loan loss provisions significantly. On the all important outlook, CEO Gail Kelly had this to say:
The tighter conditions in global capital markets will continue to dominate the near–term outlook for the financial services sector, with higher funding costs and slower system growth expected.
Despite these conditions, the Australian economy remains sound. However, we expect that the higher interest rate environment will contribute to a dampening of economic growth through the remainder of 2008.
Westpac expects the sector to have slower loan growth, higher impairment charges in both consumer and business segments, continuing market volatility and for higher funding costs to persist.
Growth in earnings will be difficult in the coming 12 - 18 months for Australian banks. The ones that fare the best will be the ones that can dodge the coming wave of bankruptcies and defaults best. Unfortunately investors there is no way to predict when and where the blow-ups will occur. It will pay to be cautious on the banks for some time yet.