The majors’ cash profit after tax of $27.4 billion for the 2012-2013 full year was up 8.7 percent from the 2011-2012 full year result of $25.2 billion; reflecting continued underlying performance growth.
According to KPMG's survey, Major Australian Banks Full Year Results 2012-13, the majors have continued to navigate their way through a low revenue growth and low interest rate environment – with both of those dynamics providing headwinds as they attempt to grow their earnings.
KPMG’s Asia Pacific Head of Banking, Andrew Dickinson, noted “In a challenging external environment, the majors’ results reflect management’s dexterity in simultaneously managing the transition to new a regulatory framework, the imperative to reduce costs and invest in customer revenue growth.”
The major banks’ margins were 213 basis points, down from 217 basis points in the prior year - reflecting the impact of lower cash rates, the higher cost of retail deposits, and reduced returns on liquid asset holdings. “These margins are the lowest on record (excluding the 08 GFC aftermath) and demonstrate that competition remains strong across all businesses,” said Mr Dickinson.
Balance sheet growth remains challenging, with low single digit growth in credit markets.
“Constrained balance sheet growth and margin pressures highlight the need to grow other less capital intensive sources of income. Banks need to invest in improving their cross-selling capability into products which deliver higher return on equity (ROE),” said Ian Pollari, KPMG’s National Head of Banking.
The major banks have continued to demonstrate resilient asset quality with loan impairment charges down to $5.0 billion compared with $6.2 billion in 2012.
“The asset performance of the major banks has continued its steady improvement on recent years. The majors will need to maintain a prudent risk appetite and disciplined lending practices in the current low interest rate environment to maintain asset quality going forward,” said Mr Pollari.
The level of stressed and overdue accounts is on the improve, with 90 days plus delinquencies down.
“That is what you would expect in a low interest rate environment where people are repaying loans ahead of time and can meet their repayment commitments more easily. The question is how sustainable is that trend if asset prices fall and interest rates rise over the medium term?” Mr Pollari added.
The major banks’ ROE is an average of 16.1 percent, compared with 15.9 percent in the full year 2012.
“Despite the challenging operating environment, the major banks’ ROEs remain world leading, supported by productivity initiatives and lower bad and doubtful debt charges,” Mr Pollari said.
“While pre-tax profits have doubled over the last ten years, return on equity in 2013 remains below the level achieved pre GFC, reflecting the impact of significantly increased regulatory capital requirements,” he added.
The major banks’ cost to income ratios decreased over the past 12 months, from 47.0 percent to 44.3 percent, with the Australian majors and Nordic banks regarded as the most cost efficient banks in the developed world.
“Over the past decade, the Australian major banks’ average cost to income ratio has reduced by 6.4 percentage points from 50.7 percent in 2003 and continues to compare very favourably with banks globally,” said Mr Dickinson.
Very disciplined cost control was balanced with investment spend in technology as the majors respond to growing preference by consumers to engage with their banks using digital channels, such as online and mobile.
“Continued improvements in costs will require more structural changes to the banks’ operating models in a number of areas - simplifying products and processes, migrating transactions to lower cost channels and increasing levels of automation,” Mr Dickinson added.