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Australian major banks demonstrate resilience amid economic uncertainty
In the face of economic headwinds, Australia's major banks have reported robust half-year results, showcasing their resilience amid rising uncertainty. According to KPMG’s Australian Major Banks Half Year 2026 Results Analysis, the four major banks collectively posted a profit after tax of $15.2 billion for the first half of 2026. This figure represents a slight decline of 2.1% compared to the same period in 2025, indicating the challenges posed by the current economic climate.
Australian major banks demonstrate resilience amid economic uncertainty
In the face of economic headwinds, Australia's major banks have reported robust half-year results, showcasing their resilience amid rising uncertainty. According to KPMG’s Australian Major Banks Half Year 2026 Results Analysis, the four major banks collectively posted a profit after tax of $15.2 billion for the first half of 2026. This figure represents a slight decline of 2.1% compared to the same period in 2025, indicating the challenges posed by the current economic climate.
David Heathcote, KPMG Australia’s Head of Banking & Capital Markets, highlighted the delicate balancing act the banks are performing. “While the headline results remain resilient, the Majors are positioning for a more challenging period ahead. The focus is increasingly on strengthening balance sheets and staying close to customers as inflation and interest rate pressures continue to work through the economy,” Heathcote said.
Despite the dip in profit, the banks reported a growth in total assets by 4.8% compared to the first half of 2025, with loan portfolios expanding by 5.4%. Business lending was a significant contributor to this growth, with portfolios increasing by 9.2%, while consumer lending also saw an uptick of 4.7%. This expansion underscores a sustained demand for credit and robust customer activity, even as economic conditions tighten.
In terms of income, the banks saw their total operating income rise to $48.5 billion, with net interest income climbing 4.9% to $40.5 billion compared to the previous year. This increase was largely driven by volume growth in lending and deposits, along with higher earnings on capital and replicating portfolios. However, competitive pressures on lending margins and the impact of higher liquidity holdings tempered these gains. The average Net Interest Margin (NIM) remained relatively stable at 178 basis points.
Cost management remains a challenge, as evidenced by a 4.6% rise in the average cost to income ratio, reaching 52.1%. This increase aligns with a general rise in operating expenses, driven by inflation affecting core costs such as personnel. Investment spending also rose by 4.7%, with significant allocations directed towards technology. The banks are focusing on digital transformation, enhancing data capabilities, and modernising platforms to improve customer experience and operational efficiencies. Key areas of investment include artificial intelligence, fraud prevention, and cyber security.
Brad Daffy, Powered Data & AI Partner at KPMG Australia, commented on the growing importance of technology in the banking sector. “As banks seek access to AI talent with practical experience, those who jumped in and learned the skills quite early have become very valuable in the market, with productivity benefits expected to be realised in future periods,” Daffy noted.
The banks also reported an increase in expected credit loss (ECL) provisions by 3.6% to $22.8 billion in the first half of 2026. This rise is consistent with portfolio growth and a cautious outlook for the future. However, ECL as a percentage of gross loans and advances remained stable at 0.6%, reflecting the continued resilience in credit quality, supported by strong employment levels and borrower repayment buffers.
Capital and liquidity ratios remain robust, with the average Liquidity Coverage Ratio standing at 132% and the average Common Equity Tier 1 ratio at 12.2%. These figures demonstrate the banks' disciplined approach to capital management, ensuring they remain well above regulatory minimums. The banks have also rewarded shareholders with higher dividend payments, as average dividends per share increased by 2.3% compared to the previous half.
David Heathcote further emphasised the cautious optimism in the sector. “The half year results reinforce the strength of the sector, but also signal a shift toward an unfavourable outlook. The sector is balancing growth and returns while navigating a more complex environment shaped by a slowing economy, together with the threat of further interest rate rises and evolving geopolitical risks impacting both consumer and business confidence,” he said.
Key metrics from the report include a decrease in the average provisions as a percentage of Gross Loans and Advances by 1 basis point to 0.6%, indicative of the continued strength in the banks’ portfolio credit quality. Meanwhile, the average Liquidity Coverage Ratio decreased to 132%, down 125 basis points from 1H25, and the average CET1 ratio increased by 13 basis points to 12.1% from 1H25. Return on Average Equity also saw a decline, decreasing by 54 basis points to an average of 10.7%.
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