Banking Matters

Major Banks Analysis: November Full Year

Major Banks Analysis: November Full Year

With a fall of $1.7 billion in reported cash earnings, the headwinds to bank performance that have been much debated for the past six months have now overcome the previous tailwinds of mortgage repricing, asset quality and balance sheet growth.

The reduction in cash earnings reflected both revenue and cost drivers, with the banks specifically calling out compliance, remediation and restructuring expenditure. Margins have also come under pressure, lending growth has been subdued and major bank market share has continued to erode.

Given the significant changes in the operating environment, the major banks are all simplifying, streamlining and rethinking the major arms of their business. Most importantly, they have also begun to revisit some of the fundamentals of their business, and some progress is starting to come through on the underlying cost base. The reported results also reinforce a strong capital position and record low impairment charges, however the outlook remains challenging and the hard work will have to continue.

Key points: 

  • Cash earnings: Fell to $29.5 billion, a reduction from the record $31.2 billion delivered the year before
  • Return on equity: Fell below 13% for the first time since the GFC
  • Expense-to-income ratio: Substantial headline increase driven by remediation and restructuring costs
  • Bad debt expense: Now at record low levels and is less than half of the historical average since the last recession

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