Uncertain outlook for Big Four banks
Australian banks had a turbulent start to 2019 as the Royal Commission outcomes took a toll on the big four, according to EY, with the future looking ‘increasingly uncertain’.
Analysis of the big four’s half-year results found combined statutory profits were down 11.8 per cent from the 2018 half-year results to $13.9 billion.
Only NAB saw an increase in statutory profit, up one per cent from $2.88 billion to $2.91 billion, while Westpac fared the worst with a fall of 24.5 per cent from $4.2 billion to $3.1 billion.
Remediation costs were $1.9 billion, mostly relating to misconduct within wealth management, and in the last 18 months, total remediation costs have reached $4.8 billion. This was likely to increase as a result of investigations into product design and compliance which will further put pressure on banks’ cost-to-income ratios.
Other headwinds included uncertain economic and housing market outlook, increasing competition and potential for negative gearing tax changes and capital gains tax increases from January 2020.
Tim Dring, EY Oceania Banking and Capital Markets Leader, said: “The growth outlook for Australia’s major banks looks increasingly uncertain, with profits down, remediation costs up and margins under significant pressure.
“The Financial Services Royal Commission has disrupted the banks’ risk appetite and business flow, propelling them to reshape their processes, simplify products and address compliance obligations.”
As a result, EY listed four key priorities for firms to focus on in the second half of the year:
- Prepare for more intensive supervision and enforcement by APRA and ASIC
- Simplification of product portfolios and re-engineering of processes to drive future growth
- Accelerate the use of technology to optimise costs
- Continue driving strategies in remediation, culture, governance and remuneration and broker model to address key recommendations of the Royal Commission
Recommended for you
In the latest Meet the Manager profile, Money Management speaks with Michael Skinner, founder and managing director at Blackwattle Investment Partners.
Perpetual has seen AUM rise 6 per cent in the last quarter but the departure of a longstanding JOHCM fund manager led to outflows of $2.2 billion from his strategy.
Global fixed income fund Bentham Global Opportunities has been added to several major platforms, enabling it to be accessed more easily by financial advisers.
Following yesterday’s news about First Sentier Investors closing four investment teams, a second global asset manager has announced it is closing its only dedicated Australian fund.