KPMG report says we’re at a ‘turning point’ for the big four banks in Australia
It is called corporate “confession” season for a reason: financial reports lay bare sometimes painful truths about a company’s operations.
Key points
- All big four banks have announced a decline in earnings for this year
- The banks have re-allocated spending towards compliance, regulatory and customer remediation costs
- A reports says the “competitive landscape is set to benefit Australian consumers”
This morning, the National Australia Bank was the last cab off the rank to report full year earnings.
With its full-year profit of $4.8 billion, down 13.6 per cent, it joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.
KPMG’s Major Australian Banks Year End Analysis Report finds the big four banks reported a combined cash profit after tax from continuing operations of $26.9 billion, down 7.8 per cent on FY2018.
The words used by the bank bosses to describe the year just gone include “disappointing” and “messy”.
That’s a fair assessment.
Following the global financial crisis, the banks faced years of both international and domestic pressure to shore themselves up — mainly with tighter lending standards and capital buffers (more cash on their books).
But here at home, the banking royal commission really lit the fuse for what major global consulting firm KPMG is calling a “turning point for the majors”.
Very simply, revenue is falling and costs are rising, according to KPMG strategy partner Hessel Verbeek.
“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,” he said.
Banking challenges could be boon for consumers
The kicker is KPMG sees no end in sight to this profit squeeze.
“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,” the consultancy firm reported.
The most brutal conclusion, however, was a recognition that the banks’ poor past behaviour and the need for processes to fix that will set them back years in terms of their overall evolution.
“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,” KPMG said.
Fellow accounting firm EY paints an equally sobering outlook for the banks in their new report on the sector, said the firm’s Oceania banking and capital markets leader Tim Dring.
“There’s no doubt that 2019 has been a tough year for Australia’s major banks and the storm clouds show no signs of abating,” he said.
“Declining profits and margins have seen the banks cut dividends and preserve capital as they batten down the hatches and brace for further challenging conditions ahead.”
The upside, the report suggests, will fall to banking customers.
With the introduction of an open banking regime, as well as the continued growth of international banks and non-bank players, banking competition for the consumer dollar is set to heat up.
EY’s analysis is that the entire financial community is struggling its way through much-needed change.
“With the rapidly approaching introduction of open banking, the next few years will usher in changes that will fundamentally shift the Australian financial services landscape,” Mr Dring said.
Practically speaking, it should mean lower fees and reduced costs of mortgages for Australians, or as KPMG puts it: “The competitive landscape is set to benefit Australian consumers.”
Source: ABC News Australia
