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Hot Topic: Transformation
Duration: 00:04:38
Breaking through, four critical behaviours to gain traction with urgent strategic change
As identified in our major banks analysis below, it’s a new era for banking. In this new environment, how can institutions ensure they focus on preparing for the future, whilst resolving the problems of the past and present?
In this Hot Topic, we describe four critical behaviours at the heart of execution and change and consider what they mean in this new era.
The start of a new era for Australian banking
The major banks delivered a surprisingly solid set of half year financial results, however the figures only reinforce that the fundamental long-term headwinds facing the industry continue to gather pace. Increasingly difficult lending conditions, slowing credit growth, and signs that the credit quality cycle is turning are setting the scene for a new era of banking in Australia.
Major Banks Analysis Highlights
Notable items have been the main driver of movement between halves. Excluding these, earnings are down slightly hoh (-0.4%) and more substantially pcp (-3.2%).
Earnings rose hoh, but fell versus pcp while capital rose in both periods in line with the need to meet ‘unquestionably strong’ capital requirements.
Almost entirely driven by customers switching to lower-margin home loan products. Deposit and wholesale funding costs remain stable but with potential to fall in the period ahead. Notwithstanding falling NIM, total net interest income rose to $31.8b, up 0.6% hoh and down 0.6% pcp.
The efforts in cost reduction have helped reduce the ratio, although modest revenue growth is making this a challenge.
Bad debt expense rose hoh and down pcp, marking the first time in three years that falling credit losses were not accretive to movement in earnings.
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