The majors' cash profit after tax of $14.7 billion for the 2013-2014 half year was up 6 percent from the 2013 second half year result ($13.9 billion), reflecting continued performance improvements.
However, the banks are facing mounting pressure from tightening margins, higher capital requirements and an inevitable rise in impairments from the current cyclical lows.
- Reduced net interest margins, down 5 basis points to an average 208 basis points, reflecting the low cash rate environment, increased lending competition, lower earnings on capital and holdings of liquid assets.
- Continued reduction in loan impairment charges, down by $384 million to $1.8 billion, which will be hard to maintain.
- Increased level of stressed and overdue accounts with 90 days+ delinquencies up by 7 percent over the previous period, highlighting a need to remain vigilant on asset quality.
- Current high level of returns sustained, with ROE up to 16.3 percent from 16.0 percent, despite the extra capital required to prepare for the new regulatory requirements.
- Increase in the average cost to income ratio from 43.9 percent to 45.1 percent. Further productivity improvements and efficiency gains will be sought through technology investment, digital innovation, greater levels of self-service and simplification.