Their challenge is to explore growth opportunities at a time when revenue is flat, while simplifying their operating models, products and processes.
The majors' cash profit after tax of $13.4 billion for the 2012-2013 half year, was up 7.2 percent from the 2011-2012 second half result of $12.5 billion, reflecting continued robust performance, according to KPMG's survey of Major Australian Banks Half Year Results 2012-13, released today.
Revenue growth was relatively flat for the majors with the exception of markets which increased due to higher volumes of customer activity. KPMG’s Head of Banking, Asia Pacific, Andrew Dickinson, noted that the wealth businesses of the major banks continue to benefit from strong equity markets and as a result greater investment inflow. "They will continue to focus on growing the wealth management sector and cross selling wealth products to their banking customers," he said.
The major banks' margins were relatively flat — 2.12 percent down from 2.14 percent in the prior half year — partly due to the high cost of retail deposits, the effect of lower interest rates which are eroding re-pricing benefits on lending, and reduced returns on liquid asset holdings.
“The margin reduction continues the trend started in 2010 which has benefitted retail deposit holders as the major banks compete to attract this source of funding," said Michelle Hinchliffe, Head of KPMG Financial Services.
The major banks have continued to maintain asset quality with loan impairment charges of $2.8 billion compared with $3.2 billion in the 2012 second half. "Although consumer and business loan books do not appear to be showing signs of further stress, the impact of global economic uncertainty will need to be closely monitored," said Ms Hinchliffe.
The major banks' ROE is an average of 16.1 percent compared with 15.5 percent in the second half of 2012. This result is in line with the average return produced by the top 25 Australian corporates and compares favourably to international banking peers.
The improved cost to income ratio of 44.7 per cent compares favourably with banks globally and bank management teams will remain focused on tightly managing capital usage and maintaining positive 'jaws' (higher revenue growth than expense growth) through tight cost control," said Mr Dickinson.
This cost control was balanced with investment spend in technology as the majors respond to digital innovation.
"Future results will be driven by efforts to find growth (either offshore or through cross sell) and to control costs by simplifying products and processes" said Mr Dickinson.
"The silver lining of the low growth environment is that banks are able to retain less capital for growth and therefore higher dividend payments to shareholders seem likely to continue," said Ms Hinchliffe.