The major Australian banks reported a modest increase in aggregate profits for the 2017 full year, with cash profit after tax of $31.5 billion, up 6.4 per cent compared to 2016, according to KPMG.
This was despite the challenging margin environment, rising capital levels, and ongoing regulatory, legal, and compliance costs, KPMG research showed.
KPMG Australia’s head of banking, Ian Pollari, said stagnant wage growth and high levels of underemployment were constraining economic growth, and in turn, demand for credit, with growth levels at mid-single digits.
“Consequently, the majors will focus their efforts on cost management, simplification, and investing in digital capabilities, whilst ensuring debt serviceability and disciplined pricing is maintained, to preserve future earnings,” Pollari said.
The major banks recorded an average net interest margin of 201 basis points (cash basis), down five basis points compared to 2016. KPMG said this was expected to continue with the introduction of the Major Bank Levy to fully flow in future reporting periods.
The increase in banks’ capital levels continued to reduce industry returns, with the majors’ returns on equity (ROE) flat on 2016, increasing 15 basis points to an average ROE of 13.9 per cent for the full year.
“The Australian major banks will need to be targeted with their investment in new technologies and balance short-term cost pressures to enable them to transition to lower cost operating models where the benefits are expected to be secured over the medium to longer-term,” Pollari said.
There was an opportunity for the banks to increase its customer engagement and enhance its operating models through the application of enhanced process automation, machine learning, and cognitive computing, he added.
“The key will be augmenting this capability with a human element.”