EY and KPMG have both released analysis of the major banks’ half-year results, revealing combined cash earnings of $15.6 billion, up 6.25 per cent from $14.7 billion in the 2016 half-year results.
ANZ, NAB and Westpac’s half-year reporting periods ended on 31 March 2017, while CBA’s half-year reporting period ended on 31 December 2016.
EY concluded that the results were strong considering the growth constraints, intense competition, increasing regulation and heightened economic uncertainty that the banks were facing.
“The balancing act of margin versus volume is a game the banks have become well-versed in as low interest rates, intense competition, funding cost pressures and moderating credit growth, particularly in their business books, all combine to constrain growth,” said Tim Dring, EY Oceania banking and capital markets leader.
“At the same time, heightened economic uncertainty is taking a toll.”
Mr Dring said that economic uncertainty is being caused both locally and globally.
“Locally, this is being fueled by high household debt, low wage growth and housing affordability challenges in Sydney and Melbourne. A possible downgrade in sovereign and bank credit ratings and, further afield, lingering offshore geopolitical uncertainties bring an increased risk of volatility in wholesale funding costs,” Mr Dring said.
“All these factors are combining to create a particularly challenging operating environment for the banks. As lower growth becomes the ‘new normal’, banks need to manage the inherent tension in two very different agendas: the need to improve financial performance versus the need to keep the bank safe.”
KPMG Australia’s head of banking Ian Pollari made similar comments, noting that the positive result was achieved in spite of the challenging environment of margin erosion and rising regulatory capital.
“In the face of increasing global geopolitical uncertainty and subdued local market conditions, the majors continue to reshape their businesses in response to a complex operating environment,” Mr Pollari said.
“The biggest challenge for them will be identifying and executing against a set of opportunities to deliver future earnings growth at the same time as realising cost savings without jeopardising that growth.”