The big four banks have ‘a big job’ ahead of them if they want to see positive growth in 2021, according to KPMG, as all four reported double-digit share price declines.
In a full-year analysis of the big four banks, KPMG said cash profit after tax was down 36.6% compared to FY2019 to $17.4 billion which reflect downward pressure on margins, high loan loss provisions and significant remediation and regulatory costs. Total operating incomes declined 1.7% to $79.3 billion.
Research by Money Management found the best-performing Australian equity funds over the past year had been those which avoided exposure to financials.
Overall, KPMG felt banks had been “resilient” and avoided a worst-case scenario by virtue of having strong balance sheets which acted as a shock absorbers during the economic downturn.
The worst-affected share was Westpac, down 28% since the start of the year, which was disadvantaged by a $1.3 billion fine from AUSTRAC for anti-money laundering breaches.
All four firms significantly reduced their dividends during the period with Westpac paying the lowest one at just over 20%. As well as being dependant on balance sheet strength, they were also asked by the regulator to limit them to 50% or less in order to retain earnings.
A key focus now would be the need for banks to digitise their operation and expand their use of fintech, a trend that had been accelerated by COVID-19. There were three ways firms could go about working with financial technology firms; partnering to innovate in existing products or channels, partnering to launch new products and services or partnering to develop new business models and revenue streams.
Ian Pollari, head of banking at KPMG Australia, said: “They have a big job ahead of them to play their role in Australia’s recovery and improve their financial performance, while progressing with a number of large and complex remediation, regulatory change and technology programs”.
“The majors will need to continue to balance between operational resilience, shareholders looking for dividends, the required investment in growth and cost transformation. The banks that manage to quickly transition to more efficient operating models and are able to execute at scale will be rewarded,” the report added.
