KPMG analysis finds that the Australian major banks (‘the majors’) have reported a continued decline in aggregate cash profits for the first half of 2019.
KPMG’s Major Australian Banks Half Year Analysis Report 2018-19 finds that the majors reported a combined cash profit after tax from continuing operations of $14.5 billion for the first half of 2019, down 4.0 percent (compared to first half of 2018).
The majors face challenging conditions from slowing lending growth and margin compression at the same time as delinquencies rise in a softer domestic economy. In addition, remediation costs are a major drag on performance, as the majors seek to rebuild trust with customers post the Royal Commission.
Ian Pollari, KPMG Australia’s Head of Banking commented: “Falling housing demand, tightening credit standards and greater competition, in particular from the non-bank sector, have combined to constrain the major’s revenue performance in retail banking.”
“As the headwinds show no signs of abating, the majors will need to carefully balance their revenue, capital management and cost objectives to preserve industry returns, at the same time as they execute on large, complex regulatory change programs to restore trust in the sector,” Mr Pollari added.
The majors have continued to allocate a greater proportion of their spending towards risk and compliance, rising substantially to comprise almost 40 percent of the majors’ total investment expenditure for the first half of 2019. Faced with growing competition from non-bank lenders and new entrants, the majors will need to balance this investment profile with digitalisation and innovation to maintain market share and deliver an enhanced customer experience.
Hessel Verbeek, KPMG Partner, Banking Strategy, said: “As the majors deal with risk and compliance challenges, they will continue to focus their efforts on simplification as they seek to drive greater efficiency in their core franchises to manage their financial performance.”
Key highlights of the results are as follows:
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