Key points: 

• Banks have benefited from rising interest rates, but margins and earnings appear to have peaked.
• The second half is likely to be a bit weaker than the first half. But over time, we expect the market to be rational in setting prices for both deposits and mortgages and try to make a decent return for shareholders.
• The outlook for bad debts is also weighing on bank shares. We expect to see a material rise over the next 12 months, but we don't think it'll be anywhere near as bad as we saw in the GFC.
• Dividends could potentially grow a little bit in the second half even if earnings are weaker because first half payout ratios were at the lower end of their target ranges.