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The Australian major banks have reported a combined cash profit after tax from continuing operations of $26.9 billion for the full year of 2019, down 7.8 percent on 2018. We analyse the four major Australian banks’ full year financial results for 2019.

The major banks faced economic and regulatory headwinds in 2019, including a soft local economy, continued investment in and management attention on risk and compliance activities, as well as intensifying levels of competition. They face a careful balancing act of fixing problems and re-building customer trust, while at the same time investing in digital and technology capabilities to drive growth.

Full Year 2019 Results Snapshot

An infographic snapshot of the major Australian bank's full year financial results.

Major Australian Banks Full Year 2019 Results Snapshot

Key highlights of the results:

  • Total operating income (cash basis) declined 3.7 percent to $81.3 billion, reflecting subdued lending conditions, the squeeze on margins and intense competition in mortgage markets. The major banks grew their mortgage books by a combined 1.8 percent in FY2019, below system growth of 3.1 percent, which resulted in their market share of the total mortgage market decreasing 92 basis points to 81.2 percent.
  • The major banks reported a cash profit after tax from continuing operations of $26.9 billion, down 7.8 percent on FY2018. This decrease is a consistent trend across each of the major banks and also reflects pressure on margins and increased remediation and regulatory costs.
  • The average net interest margin (cash basis) fell below 2 percent for the first time to 194 basis points, which represents a decline of 8 basis points on FY2018, largely driven by customers switching to cheaper home loans, customer refunds, competitive pricing pressures, costs associated with retaining existing customers and the impact of low interest rates. 
  • The average cost-to-income ratio has increased 210 basis points, to an average of 48.7 percent, reflecting the elevated cost associated with ‘investment’ in regulatory, risk and compliance programs. Whilst a large proportion of these costs have been labelled ‘large/notable items’ associated with customer remediation, there is debate as to whether there is a structural increase in the cost of doing business in the post-Hayne banking environment.
  • Credit quality has remained sound across the major banks, with a marginal increase of 1 basis point in impairment charges as a percentage of average gross loans and advances, to 14 basis points. Aggregated loan impairment expense has increased by 10 percent to $3.7 billion, off a historically low base. Asset quality measures have marginally deteriorated in lending portfolios, as impaired assets and delinquencies have increased in aggregate across the major banks.
  • The major banks have announced that they are well positioned to meet APRA’s “unquestionably strong” benchmark of Common Equity Tier 1 (CET1) ratio of 10.5 percent by the implementation date of 1 January 2020. The average CET1 capital ratio has increased 21 basis points to 10.79 percent, driven by capital management initiatives including divestment of non-core businesses, organic capital generation and dividend management. We highlight that WBC has also announced an additional $2.5 billion capital raising.
  • The focus on strengthening capital and challenging profitability has continued to impact return on equity (ROE), which decreased by 131 basis points to an average of 11.0 percent (including notable items). This trend may continue given the ongoing operational headwinds and the anticipated increase in the level of capital required to be held by the major banks’ New Zealand subsidiaries.