KPMG analysis finds that the Australian major banks (‘the Majors’) have reported a decline in aggregate cash profits in FY2019.
KPMG’s Major Australian Banks Year End Analysis Report 2018-19 finds that the Majors reported a combined cash profit after tax from continuing operations of $26.9 billion, down 7.8 percent on FY2018.
The Majors faced challenging economic and regulatory conditions in FY2019, including a soft local economy, continued investment and management attention on risk and compliance activities as well as intensifying levels of competition.
Ian Pollari, KPMG Australia’s Head of Banking commented: “A turning point for the Majors was the overall decrease in total operating income, driven by strong competition, particularly in mortgages, as well as a rebasing of fees following the Royal Commission.”
The fallout from the Royal Commission and the high volume of ongoing prudential, regulatory and parliamentary inquiries, together with litigation proceedings have impacted the Majors’ operating costs. There is a continued trend of re-allocating investment spend towards compliance, regulatory and customer remediation costs, forcing investment and resources away from enhancing technology and digitalisation priorities
“Management will face into the careful balancing act of fixing problems and re-building trust with customers, at the same time as creating capacity to invest in digital and technology capabilities in a lower growth cycle”, added Mr Pollari.
The ongoing effects of the Majors’ customer remediation programs continue to negatively impact financial results, which are routinely called out as ‘notable items’ within their cash profits.
Hessel Verbeek, KPMG Strategy Partner, Banking, said: “the Majors’ profits are down significantly as a result of shrinking margins in a low interest rate environment and higher costs, including refunds to customers, in the aftermath of the Royal Commission.”
With the introduction of an Open Banking regime, scaled fintech companies entering from international markets and the launch of a number of new challenger banks, as well as the continued growth of international banks and non-bank players, the competitive landscape is set to benefit Australian consumers.
Looking ahead, the Australian banks will actively seek opportunities to invest in targeted areas of growth, enhance their customer-facing digital services and capabilities, as well as take greater action on reducing the cost of their operating models in order to position for the future.