The major banks have reported a fall in cash profits for the first half of 2016, amid increasing non-performing loans and higher capital and liquidity requirements, according to KPMG.
PMG’s report, Australian banks half year analysis 2015-16, found that the major banks’ cash profit after tax ($14.8billion), were down three per cent, compared to the first half of 2015.
KPMG national head of banking, Ian Pollari said, “difficult economic and market conditions, coupled with the continued upward trajectory of regulatory capital” were now starting to bite the majors and underpinned their softer half year result.
He said the benign credit environment of recent years deteriorated earnings for banks, but credit problems were mostly restricted “to a handful of institutional credits”.
“Given credit’s cyclical nature, it is inevitable that loan impairments would eventually start to rise. What has been a positive driver of results for the industry over recent years is now becoming a slight headwind,” said Pollari.
The report also highlighted that majors’ “net interest income growth” increased by seven per cent to $30.2 billion in the first half, while non-interest income fell three per cent to $12.1 billion “mainly due to weaker wealth management” and market income.
Pollari said the majors were able to preserve their margins “primarily through mortgage re-pricing”.
He said asset quality had deteriorated amid the challenging market conditions in the mining and resources sector, which was why the “aggregate charge for bad and doubtful debts” increased by 49 per cent ($834 million) in the first half, to $2.5 billion.
KPMG partner, financial services, Andrew Dickinson said return on equity (ROE) fell 153 basis points to an average of 13.8 per cent for the first half of 2016.
When you compared this to the 20 per cent ROE ten years ago, it showed that banks were bearing the “brunt of increasing regulatory capital” buffering, he said. Dickinson said, this pressure would only continue and banks growth and costs management would be put under even more pressure.
