TOM RICHARDSON: NAB, ANZ and Commonwealth Bank profits jump as AI-driven productivity lifts earnings
TOM RICHARDSON: Bank shares have surged in February as they impress investors with cost control and benefit from the flow through of three interest rate cuts in 2025.
Bank investors have enjoyed a Goldilocks February as AI-fuelled lenders deliver higher profits thanks to steadily growing revenues and flat costs.
On Wednesday, National Australia Bank shares jumped nearly 6 per cent to a record high of $47.96, as it boasted being on track to deliver $450m in cost savings linked to productivity gains over the 12 months to September 30, 2026. ANZ Bank and CBA have also jumped this month on better-than-expected profits.
For the December quarter, NAB’s cash profit surged 15 per cent to $2.02b versus the prior six-month period, and the banking sector’s blockbuster performance over earnings season is marking it out as a potentially big winner from savings linked to AI.
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By continuing you agree to our Terms and Privacy Policy.“The banks’ numbers have been outstanding,” said Tony Sycamore, an analyst at IG Markets.
“When they talk about productivity gains it’s a combination of less people doing the same amount of work, or the same amount of people doing more work.”
Regulation as competitive advantage
The banks are also winning because they look more immune than most businesses or sectors to disruption from AI, while also being able to leverage the new technology to boost profits.
In Australia, heavy regulation by ASIC, APRA and the Reserve Bank means it’s impossible for an AI-first start-up to compete with the banks’ core business lines of taking deposits and making home or business loans.
To get a licence to take deposits, make loans, or get connected to the national payments infrastructure, a business needs multiple approvals from regulators ASIC, APRA, and the Reserve Bank.
An AI-start-up could code a platform to price home loans and deposits, but there’s virtually no chance it could get regulatory permissions to seek customers.
This is unlike the software sector that normally sells business-to-business, with no regulatory permission needed to build alternative products in accounting, transport, logistics, or IT.
The banks’ impressive profit growth and competitive position underwritten by regulation have helped send the S&P/ASX 200 Index to near a record high of 9115 points this month, while the technology sector has crashed on worries about disruption from AI.
Canberra watching
The big banks’ key role as liquidity providers to the local economy and regulated status also means they’re the subject of scrutiny by politicians in Canberra.
“The banks’ CEOs have got to be careful given they operate in a politically sensitive part of the economy,” said Mr Sycamore.
“And if I was a bank CEO I wouldn’t be publicly talking about productivity gains coming from job cuts, or AI. So, that’s where we have to infer a little bit, but reading between the lines we can say the transition to increased productivity from AI is now filtering through to their bottom lines.”
A Financial Stability Review by the Reserve Bank notes that commercial banks have been using AI across their operations for at least 18 months.
“AI has helped to automate processes, improve decision-making and enhance risk management practices in some areas,” the RBA said.
The business of pricing the risk of a loan defaulting is an obvious area where computers can now work far faster than humans and deliver better results.
But the RBA also points to the automation of transaction monitoring and reporting as an area where an intelligent machine can shift through data far more efficiently than human compliance officers.
The obligation to report suspicious or potential money laundering transactions on a daily basis to a regulator such as AUSTRAC also points to why banks are heavily regulated, and it’s hard for new businesses to compete.
The RBA added that the rapid pace of development in AI also means the banks will soon use it to review lengthy documents, provide real-time help to customers, and write software code faster.
“We know ANZ have been cutting costs in traditional ways, but I expect that the productivity gains for banks have been flowing through faster over the past three or four months now, so they can get more out of employees using these tools,” said Mr Sycamore.
Rate cut cycle helps
For the December quarter, ANZ, CBA, and NAB all flagged bad debts as a percentage of loans outstanding much lower than analysts expected.
“It’s one of those earnings seasons where you’re getting the usual beats and blow-ups,” Mr Sycamore said. “But it’s really clear the banks are beating and the rate cut cycle has helped. The economy and jobs data are still OK, but the appetite for credit may slow on that latest hike.”
On Tuesday, NAB said it recorded bad debts for the December quarter of $170m, down significantly on the $248m forecast by analysts at investment bank Citigroup.
NAB’s result was the second-lowest quarter since the final quarter of 2024, as the effect of three interest rate cuts between February and August 2025 made repayments easier for borrowers.
In February, the RBA lifted rates 25 basis points, although Mr Sycamore said the banks were still likely to attract investors.
According to the latest cash rate futures data, traders put a 96 per cent chance on the RBA holding rates when its monetary policy board next meets on March 17.
