Australia

Banking Newsletter - December 2012

We cover regulation, customer/channel trends, ATO liquidity charges, consumer protection, Sibos conference and results from major banks and mutuals.

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Banking Newsletter - December 2012

Solid results but banks need to position for change 

Australia’s major banks (the majors) posted another solid profit for the 2011-2012 full year however challenges lie ahead as they position for a shifting banking landscape. They are manoeuvring their businesses through a new paradigm where tougher regulation, a weaker economy and changing consumer behaviour converge.

The majors cash profit after tax of $25.2 billion for the 2011-2012 full year, was up 3.7 percent from last year’s cash profit of $24.3 billion, reflecting healthy domestic performance, according to KPMG's Major Australian Banks Full Year 2012 Summary.


The increase in profit was achieved in an environment of reduced margins and increased impairment charges. These were offset by volume increases at both a net interest margin and other income level. Statutory profit before tax was $33.0 billion for 2012 compared to $32.0 billion in 2011.


Key highlights from the report

  • The majors’ margins averaged 2.17 percent down from 2.24 percent in the prior year. This reflects the ongoing competitive pricing of domestic deposits and the impact of holding higher stocks of liquid assets.
  • ROE is an average of 16.0 percent across the majors compared with 16.7 percent full year 2011. Bank profit increases are unable to keep pace with increased capital requirements, so the return to shareholders is decreasing.
  • Asset quality has remained strong although loan impairment charges increased from $5.3 billion to $6.2 billion. The increased impairment charge reflects weak economic conditions in the UK impacting NAB’s overseas operations and some initial signs of stress in the domestic business banking sector.
  • The majors must make structural changes to improve productivity, building on the tactical work they have done since 2008. This may involve restructuring their branch network, redesigning processes and investing in platforms that enable cheaper distribution of services and transactions.
  • There is a need to respond to the regulatory landscape and continue to provide adequate returns to shareholders. The market is getting even tougher and as such, the majors must do more than evolve, the quantum and pace of change needs to significantly increase.


Looking ahead, the operating environment will bring increasing pressure for the majors as they confront a slowing domestic economy, subdued demand for credit, sweeping regulatory changes, evolving consumer preferences and increased levels of competition.

 

The performance of Australia’s major banks for the remainder of 2012-2013 will depend largely on how they change operating models to respond to this changing landscape. There are many onerous regulatory deadlines looming, the economic outlook is subdued, and pressure to provide more efficient distribution platforms to a changing customer base is increasing.
 

 

Ian Pollari

Ian Pollari
National Sector Leader, Banking

+61 2 9335 8408

ipollari@kpmg.com.au

Andrew Dickinson

Andrew Dickinson
ASPAC Banking Sector Leader

+61 2 9335 8952

adickinson@kpmg.com.au

Michelle Hinchliffe

Michelle Hinchliffe
Partner, Audit 

mhinchliffe1@kpmg.com.au

+61 3 9288 5452

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 In this issue

Major Australian Banks Survey Year End 2012

Major Australian Banks Survey Year End 2012
KPMG's 2012 Financial Institutions' Performance Survey includes coverage of the major Australian banks.