An era of industry transformation: Major Australian Banks Half Year Analysis

New KPMG research finds that the Australian major banks (‘the majors’) are facing a challenging new era of industry transformation, reporting a decrease in aggregate profits for the 2018 half year. KPMG’s Major Australian Banks Half Year Analysis Report 2017-18 finds that the majors reported a cash profit after tax of $15.2 billion for the 2018 half year, down 2 percent (compared to the first half 2017).

While reporting continued improvement in loan impairments and margins, the result indicates the difficult regulatory and operating environment facing the majors, with slowing revenue growth, rising capital levels and increasing legal and remediation costs, as the industry works to restore trust.

Ian Pollari, KPMG Australia’s Head of Banking commented: “Despite slowing demand for credit and increasing regulatory and capital costs, the majors are accelerating their efforts to transform their business portfolios, invest in digital capabilities and simplify their operating models.”

Adrian Fisk, KPMG Head of Financial Services said: “The half year results begin to reflect the transformation of the industry that is underway and as the majors re-shape their business models for the future to reflect the societal, regulatory and technology agenda – careful consideration of the needs of all stakeholders will be required in their strategic decision-making.”

Key highlights of the results are as follows:

  • The majors reported a cash profit after tax of $15.2 billion for the half year, down 2 percent (compared to the first half of 2017), driven by lower non-interest income and higher restructuring and regulatory costs.
  • The major banks recorded an average net interest margin of 203 basis points (cash basis), up 3 basis point compared to first half 2017, primarily due to mortgage and deposit re-pricing offsetting lower earnings on capital, market’s income and the impact of the Major Bank Levy.
  • The majors recorded net interest income growth (cash basis), increasing by 5 percent to $31.6 billion for the half year, while non-interest income (cash basis) decreased, by 5.8 percent to $11.5 billion, mainly due to one-off asset disposals. Housing credit recorded growth in the half year of 1.8 percent, compared to non-housing credit which only grew by 0.9 percent.
  • The major banks’ aggregate charge for bad and doubtful debts decreased $431 million to $1.8 billion (statutory basis) for the half year (down 19.5 percent on first half 2017), with lower individual provisions.
  • The majors’ capital position continued to rise, with their average Common Equity Tier 1 (CET1) capital ratio rising by 20 basis points over the half year to an average of 10.5 percent of risk-weighted assets (RWAs), reflecting the impact of increased regulatory capital requirements.
  • In response to regulatory requirements, the increase in banks’ capital levels has continued to compress industry returns. The majors’ returns on equity (ROE) decreased by 78 basis points to an average ROE of 12.9 percent for the half year.
  • The average cost-to-income ratio increased by 265 basis points across the majors to 45.7 percent, attributed to meeting rising regulatory compliance, legal and remediation requirements, as well as restructuring costs and investment in technology.

Read the full report.


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