New data has shown that the major banks experienced a decrease in aggregate profits for the 2018 half year.
The Major Australian Banks Half Year Analysis Report 2017-18 found that the majors reported a cash profit after tax of $15.2billion, which is down 2% compared to the first half 2017.
While the banks have reported continued improvement in loan impairments and margins, experts believe the result shows a difficult regulatory and operating environment for the majors. They have faced slowed revenue growth, rising capital levels and increasing legal and remediation costs.
Ian Pollari, KPMG Australia’s head of banking said, “Despite slowing demand for credit and increasing regulatory and capital costs, the majors are accelerating their efforts to transform their business portfolios, invest in digital capabilities and simplify their operating models.”
Adrian Fisk, KPMG head of financial services added, “The half year results begin to reflect the transformation of the industry that is underway and as the majors re-shape their business models for the future to reflect the societal, regulatory and technology agenda careful consideration of the needs of all stakeholders will be required in their strategic decision-making.”
The results also showed that the major banks recorded an average net interest margin of 203 basis points, up three basis points compared to last year. This difference is primarily due to mortgage and deposit repricing offsetting lower earnings on capital, market’s income and the impact of the Major Bank Levy.
The majors recorded net interest income growth, increasing by 4.8% to $31.7 billion for the half year, while non-interest income decreased, by 5.8% to $11.5billion, mainly due to one-off asset disposals. Housing credit recorded growth in the half year of 1.8%, compared to non-housing credit which only grew by 0.9%.
The results also showed that their aggregate charge for bad and doubtful debts decreased by 19.5%; their capital position continued to rise and the average cost-to-income ratio increased by 265 basis points across the majors to 45.7%.
Also, thanks to the banks’ responses to regulatory requirements, the increase in their capital levels has continued to compress industry returns. The majors’ returns on equity (ROE) decreased by 78 basis points to an average of 12.9% for the half year.
