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The Australian Banks have reported a combined cash profit after tax from continuing operations of $8.3 billion, down 42.6 percent on the same period in FY2019. We analyse the four major Australian banks’ half year financial results for 2020.

The Australian economy faces an unprecedented level of uncertainty surrounding the size and duration of the financial downturn resulting from the COVID-19 pandemic.

FY2020 will be a year where the Majors will play a critical role supporting the economy to withstand the impact of the crisis and to help in its recovery. Furthermore, it is an important opportunity for the industry to rebuild community trust and purpose, much of which was lost during the Royal Commission.

Against this backdrop, the Majors have recorded a fall in profitability, as revenue and margin pressures continue, with elevated cost bases associated with ongoing remediation and compliance programs and deteriorating asset quality impacting negatively on industry returns.

Half Year 2020 Results Snapshot

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

Major Australian Banks Full Year 2020 Results Snapshot

Key highlights of the results:

  • Total operating income (cash basis) declined 3 percent to $39.9 billion, reflecting subdued lending conditions and continued squeeze on margins. The Majors grew their mortgage books by a combined 2.7 percent in HY2020, with non-housing lending growing by 5.2 percent.
  • The Majors reported a cash profit after tax from continuing operations of $8.3 billion, down 42.6 percent compared to the first half of 2019. This decrease is a consistent trend across each of the Majors and also reflects pressure on margins and increased remediation and regulatory costs.
  • Cost-to-income ratios have increased from an average of 46.1 percent to 54.8 percent, reflecting the elevated costs associated with large and ongoing customer remediation and regulatory programs, in particular related to the management of non-financial risks (operational risk, conduct and compliance), as well as a large amortisation increase by one of the Majors.
  • Credit quality has been negatively impacted by the early onset of the crisis leading to an increase of 29.5 basis points in impairment charges as a percentage of gross loans and advances. Aggregated loan impairment expense has increased by 226 percent to $5.7 billion. This reflected both the impact of COVID-19, as well as a broader credit deterioration.
  • The average Common Equity Tier 1 (CET1) capital ratio increased 14 basis points to 10.9 percent, driven by capital management initiatives including divestment of non-core businesses, organic capital generation and dividend management. We highlight that NAB has also announced an additional $3 billion capital raising.
  • The major banks recorded an average net interest margin of 193 basis points (cash basis), down 3 basis points compared to the first half of 2019, largely driven by switching from higher margin interest-only loans to principal and interest and competitive pricing pressures.
  • Rising bad and doubtful debts, increasing capital and subdued growth sees return on equity (ROE) continue to fall, decreasing by 557 basis points to an average of 6.4 percent. Downward pressure on ROEs will remain for the foreseeable future, given the ongoing impact of a deteriorating global and local economy.

Major banks’ response to COVID-19

The major banks have been decisive with their COVID-19 reaction and their community resilience response; they now need to turn their minds to recovery and forging a new reality. We provide a summary in our flyer below.