Big Aussie banks see profits fall in 2018
The big banks have seen a fall in aggregate cash profits for 2018 after they restructured and simplified their business models in an effort to regain trust and position for a more challenging operating environment, a new KPMG report has shown.
The report found the majors reported a cash profit after tax from continuing operations of $29.5 billion for the 2018 full year, down 5.5 per cent on 2017.
The result underscored a challenging regulatory and operating environment for the majors, KPMG said, as they faced slowing revenue growth, rising capital levels and increasing legal and remediation costs – at the same time as the industry worked to rebuild trust with stakeholders.
“In the face of a number of structural factors impacting the banking industry simultaneously, the majors are executing against their restructuring and simplifications programs in order to reposition their business models for the future,” said Ian Pollari, KPMG Australia’s head of banking.
“They are adapting their business mix, product portfolios and distribution strategies in response to the evolving operating and regulatory environment.”
KPMG said that while remediation, legal and regulatory costs have risen substantially as a proportion of the majors’ total expenditure, the banks will need to balance this spend with continued investment in digital and technology innovation in the face of growing threats from new players.
It said that this is especially relevant given the introduction of changes to the ADI licensing regime and Open Banking, which are intended to stimulate greater competition in the market.
Hessel Verbeek, KPMG partner, banking strategy, said that not only have the various compliance and remediation costs translated into higher cost-to-income ratios, the majors’ investment spend in risk and compliance projects is also up strongly and in most cases investments on growth initiatives has decreased in a relative sense.
“If this redirection of investment towards regulatory compliance continues over a protracted period of time and the majors are unable to maintain their historical levels of investment in digital and other competitive initiatives, it could impact on the level of innovation that Australian consumers and businesses are accustomed to from our banking industry. Trade-offs will inevitably need to be made,” Verbeek said.
