This years Major Banks Analysis indicates annual cash earnings at Australia's four major banks have fallen for the first time since the global financial crisis, with the result partly driven by 'one-off' items at individual banks, rising bad debt expense and slowing credit growth in the second half of the 2016 financial year.
These results reflect a slowing of momentum, particularly in the latter stages of FY16, with a noticeable softening in the majors' traditional growth drivers. There are however signs of focus and action as they prepare themselves for a new, less certain, banking environment.
The half year results should serve to remind us just how complicated it is to be a Major Bank in Australia right now - a solid performance but…where to from here?
The majors face a confluence of factors that will shape the future of banking: fundamental forces in the external environment, moderation in the traditional drivers of growth and an increasingly binding set of constraints- both external (regulation, capital, funding) and internal (legacy, culture).
At the same time, the social context is changing rapidly, making for a very challenging outlook.
The Major Banks have continued to do what they do best and delivered another set of record results. Business reshaping and investment in innovation feature heavily in the result and outlook.
Regulatory and market pressures are pointing towards all the banks holding more capital, systematic risks are building and digital is changing the price of everything. In setting course for the future, banks will be thinking carefully about where to invest to generate capital growth over the medium term, if they are to achieve their ambitious return on equity targets.
Banking on change.
The major banks half year underlying cash earnings of $14.8 billion is yet another record and reinforces their broad-based contribution to the Australian economy, a theme common to each of their submissions to the Financial System Inquiry.