Illustration: John Shakespeare.

Illustration: John Shakespeare.

The banks are posting results that suggest SPC, Toyota and corporate casualties, including resources sector engineering and construction group Forge, are not harbingers of a deep corporate slump - or at least, not yet.

They have loans out right across the economy, and the health of their loan books is a measure of how the nation has been travelling.

When bank loans do go bad, they also tend to rot from the head down. Corporate and institutional loan books sour first. Household loan demand may slow as fears of job losses rise, but household loan defaults hang on whether or not job losses occur in sufficient numbers.

ANZ's announcement of a 13 per cent rise in cash earnings to $1.73 billion in the December quarter and CBA's report on a 14 per cent lift in cash earnings to $4.3 billion in the December half both revealed solid credit quality, however.

ANZ's general and specific provisions for problem loans were $191 million in the quarter, down from $322 million in the September quarter last year, and $311 million in the December 2012 quarter.

Individual provisions fell from $285 million in the September quarter to $157 million, and other measures are pointing in the right direction.

Non-performing loans as a percentage of gross loans and advances have, for example, fallen steadily from 1.78 per cent in the December 2011 quarter, to 1.19 per cent, and ANZ's portfolio of impaired assets has declined by $2.2 billion or 35 per cent since March 2011.

On Tuesday ANZ chief executive Mike Smith described the credit environment as ''benign'', and noted that corporate balance sheets were strong, here and overseas.

Corporate balance sheets that were cleaned up during and after the global crisis are, if anything, under-utilised as boards continue to build reserves and keep a lid on spending. Business credit growth in Australia was an anaemic 1 per cent last year, well below a 4.6 per cent rise in mortgage lending.

Companies become better credit risks when they pay their debts down and rein in expenditure, however, and CBA chief executive Ian Narev used the same adjective as Smith - benign - to describe the climate on Wednesday.

CBA's December half cash profit was $518 million higher compared with the December 2012 half, and revenue gains, cost control and lower problem loan provisions all contributed, offsetting a slight decline in CBA's net interest margin - the difference between what it pays for money and what it charges to pass it on.

CBA's net interest margin fell by 3 basis points from 2.17 per cent to 2.14 per cent compared with the June half last year. It was still 4 basis points wider than it was in the December half last year, however, and in the December half CBA's interest-earning assets rose by 5 per cent.

As with the ANZ, lower debt charges added cream for CBA. Its loan impairment expenses of $457 million were 26 per cent or $159 million lower in the half than they were a year earlier.

They were down a less propulsive 2 per cent compared with the June half, but as a percentage of gross loans and acceptances they have fallen from almost three-quarters of a per cent in the global crisis-affected year to June 2009 to just 0.16 per cent. Home loan arrears have more than halved, and CBA's portfolio of troublesome commercial loans has shrunk by 44 per cent since December 2010, including a 17 per cent fall in the latest half.

CBA bumped its interim dividend up from from $1.64 to $1.83 (shareholders should mark April 3 as the payment date) and it had this to say about its general position: ''Asset quality ratios show continued improvement [with] the level of impaired assets, commercial troublesome assets and retail arrears continuing to reduce … the credit quality of both the retail and corporate portfolios remained sound.''

That pretty much sums up the current state of play. Headlines about companies being in various kinds of crisis are continuing to appear, and are one reason consumer confidence is now barely positive, and at it lowest point since last May. They are not, however, yet translating to deteriorating bank debt quality.

One caveat is that bad debt episodes tend to come late in a corporate downturn. There's a stigma attached to failing to service debt obligations, and companies fight hard to avoid it.

For the time being, however, the banks are continuing to motor along. They have been a bit out of favour with investors since the Christmas break, but don't see their loan books deteriorating and look likely to once again leverage subdued loan growth into solid earnings growth and dividend increases this year.

mmaiden@fairfaxmedia.com.au