Stuart Condie
(Australian Associated Press)

The balancing act that allowed Australia’s big four banks to lift their combined first-half cash profit to $15.6 billion is getting more precarious, analysts say.

The quartet lifted cash profit about six per cent from a year ago but high levels of property-related household debt combined with a regulator-engineered slowdown in the housing market mean margins are likely to come under increased pressure.

Westpac, which on Monday became the last of the majors to report its first-half earnings, said recent mortgage rate increases would help lift its net interest margin after a contraction of 0.4 percentage points in the first half.

However, Ernst and Young’s Tim Dring said that won’t mean much if affordability suffers.

“While rate increases benefit the banks’ earnings and margins, they also have the potential to put additional pressure on an already highly indebted household sector,” said Mr Dring, EY Oceania’s banking and capital markets leader.

“The banks’ ability to extract additional margin through differential rate repricing on residential property lending will become even more of a balancing act.”

Announcing a three per cent rise in first-half profit to $4.02 billion, Westpac said mortgage lending was up six per cent on a year earlier – but that growth of five per cent is expected in 2018

Making mortgages too costly to consumers already contending with sluggish wage growth could depress demand.

ANZ chief executive Shayne Elliott – whose bank lifted first-half profit 23 per cent to $3.4 billion – said he was specifically gearing his bank for a period of low credit growth, with further regulatory moves to rein in riskier interest-only and investor lending in the pipeline.

“We are seeing mounting regulatory, government and public pressure to curtail housing price growth, particularly in the Sydney and Melbourne markets, and this is likely to continue to build,” Mr Dring said.

The Australian Prudential Regulation Authority is expected to outline its definition of “unquestionably strong” before the end of the year.

The majors’ returns on equity increased by 0.28 percentage points to an average 13.9 per cent, according to KPMG, but that will come under pressure should APRA’s definition require the banks to hold more capital to support mortgage lending.

“The majors’ management teams have done a commendable job of building their capital buffers over the past few years, which will need to continue,” Mr Yates said.

“This is putting further pressure on the their ability to grow and will ultimately inform their strategic decision-making around what businesses they wish to remain in over the medium-to-longer term.”

Housing also figured highly on National Australia Bank’s list of concerns.

NAB lifted first-half profit 2.3 per cent to an above-expectation $3.29 billion, but put more money aside for soured loans amid an impending oversupply of east coast apartments.

Commonwealth Bank, which in February lifted its first-half cash profit 2.1 per cent to $4.9 billion, will issue a third-quarter trading update on Tuesday.