Borrow
COVID-19 hits big 4’s bottom line
COVID-19 has seen the big four banks’ bottom line reduce by 42.6 per cent to a combined cash profit after tax from continuing operations of $8.3 billion, new analysis has found.
COVID-19 hits big 4’s bottom line
COVID-19 has seen the big four banks’ bottom line reduce by 42.6 per cent to a combined cash profit after tax from continuing operations of $8.3 billion, new analysis has found.
The research released by consulting firm KPMG highlighted that despite falling profits, the major banks will need to support the Australian economy in the current environment.
“FY2020 will be a year where the majors will play a critical role supporting the economy to withstand the impact of the crisis and to help in its recovery. Furthermore, it is an important opportunity for the industry to rebuild community trust and purpose, much of which was lost during the royal commission,” the report found.
Against this backdrop, the majors have recorded a fall in profitability, as revenue and margin pressures continue, with elevated cost bases and deteriorating asset quality impacting negatively on industry returns.
Ian Pollari, KPMG Australia’s head of banking, commented: “The biggest challenge for the majors will be balancing the necessary support for the recovery effort and in doing so, restoring their reputations, while at the same time navigating a number of structural headwinds.”
EY’s separate analysis also found that the major banks are largely driven by a steep rise in impairment charges through the collective credit provision.
Analysis of this period is made more difficult given CBA’s half year ended on 31 December 2019, before the impact of the pandemic started to be felt in the local market, making it an outlier for this reporting cycle.
However, for the three banks with 31 March half year closes (ANZ, NAB and Westpac), the economic impact of the pandemic has already had a major impact on their results, despite only hitting during the tail end of the reporting period.
EY Oceania banking and capital markets leader Tim Dring said: “Impairment charges have increased dramatically, driven by collective provisions, as the banks review potential future loan losses in the face of anticipated deteriorating conditions and a highly uncertain – and potentially bleak – economic outlook.”
“We are still in an interim period where the banks are not yet aware what the full extent of these losses will be. Many customers have taken advantage of repayment holidays, which makes determining the true scale of potential delinquencies hard to predict,” Mr Dring said.
“But with the cash rate set to remain at historical lows for a prolonged period and the economy in a sharp and possibly protracted decline, there is no doubt that the major banks face substantial earnings headwinds in an environment of unprecedented uncertainty.”
More pressure on revenue, capital and dividends
Net interest margins held up relatively well in the current reporting cycle, decreasing by an average of just 2 basis points from the 2019 half-year results to 1.93 per cent. However, an improvement in margin is anticipated as banks reprice credit risk and start to see a potential easing of competition in both deposits and loans.
“Ultra-low interest rates and continuing uncertainty over the credit growth outlook point to the banks facing ongoing revenue compression,” Mr Dring said.
“We’ve also seen lower earnings in recent periods putting pressure on capital generation and the banks’ ability to sustain elevated payout ratios. The banks are engaged in a delicate balancing act between the needs of shareholders – particularly retirees who may rely on dividend income – and maintaining capital.”
“While banks are generally reluctant to reduce dividends to shareholders, this half-year cycle has seen a combination of reduced and deferred dividends and issuance of capital as they batten down the hatches for the changing climate ahead. It’s an especially complex challenge when the length and ultimate impact of the economic downturn on the banks is yet to be determined,” Mr Dring concluded.
RELATED ARTICLES
About the author
About the author
Banking
RBA's new ruling on card surcharges sparks debate among businesses and banks
In a significant move aimed at enhancing transparency and fairness in the Australian payments landscape, the Reserve Bank of Australia (RBA) has announced the removal of surcharging on debit, prepaid, ...Read more
Banking
Australian SMBs lose two business weeks annually to late payments, report finds
In a startling revelation, the latest report by GoCardless, a global bank payment company, highlights the crippling impact of late payments on small and medium businesses (SMBs) across AustraliaRead more
Banking
Brighten’s reverse‑mortgage bet: why a niche product could be non‑banks’ next profit engine
Brighten has created a dedicated reverse‑mortgage leadership post, signalling a strategic push into equity release as Australia’s demographic curve tilts older and wealth concentrates in housingRead more
Banking
Why banks are moving at different speeds after the RBA hike — and how to turn timing into advantage
The Reserve Bank’s latest cash rate move has triggered an uneven response from lenders — a pattern that reveals more about funding structures, risk appetites and systems readiness than headline ...Read more
Banking
ANZ’s company-borrower mortgage clampdown: a risk reset with wide spillovers for SMEs, investors and non-banks
ANZ has tightened credit settings for home loans where the borrowing entity is a company — a narrow policy change with broad commercial consequences. It signals a shift in risk appetite across ...Read more
Banking
CBA’s investor-loan win signals a new phase in Australia’s mortgage machine
Commonwealth Bank’s outperformance in investor mortgages isn’t just a leaderboard moment; it’s a proxy for who owns the next growth leg in a broker‑led, increasingly digital mortgage marketRead more
Banking
A divided Big Four signals a two-track 2026: how to profit from rate uncertainty
Australia’s largest banks can’t agree on where the cash rate lands in 2026 — a split that matters more than the number itself. When the price of money is ambiguous, strategy becomes a game of ...Read more
Banking
Brokers own the mortgage funnel: Why a 77% share is reshaping bank strategy in Australia
Australia’s mortgage market has quietly consolidated around one gatekeeper: the broker. With brokers facilitating roughly 77% of new home loans, distribution power has migrated from bank branches to ...Read more
Banking
RBA's new ruling on card surcharges sparks debate among businesses and banks
In a significant move aimed at enhancing transparency and fairness in the Australian payments landscape, the Reserve Bank of Australia (RBA) has announced the removal of surcharging on debit, prepaid, ...Read more
Banking
Australian SMBs lose two business weeks annually to late payments, report finds
In a startling revelation, the latest report by GoCardless, a global bank payment company, highlights the crippling impact of late payments on small and medium businesses (SMBs) across AustraliaRead more
Banking
Brighten’s reverse‑mortgage bet: why a niche product could be non‑banks’ next profit engine
Brighten has created a dedicated reverse‑mortgage leadership post, signalling a strategic push into equity release as Australia’s demographic curve tilts older and wealth concentrates in housingRead more
Banking
Why banks are moving at different speeds after the RBA hike — and how to turn timing into advantage
The Reserve Bank’s latest cash rate move has triggered an uneven response from lenders — a pattern that reveals more about funding structures, risk appetites and systems readiness than headline ...Read more
Banking
ANZ’s company-borrower mortgage clampdown: a risk reset with wide spillovers for SMEs, investors and non-banks
ANZ has tightened credit settings for home loans where the borrowing entity is a company — a narrow policy change with broad commercial consequences. It signals a shift in risk appetite across ...Read more
Banking
CBA’s investor-loan win signals a new phase in Australia’s mortgage machine
Commonwealth Bank’s outperformance in investor mortgages isn’t just a leaderboard moment; it’s a proxy for who owns the next growth leg in a broker‑led, increasingly digital mortgage marketRead more
Banking
A divided Big Four signals a two-track 2026: how to profit from rate uncertainty
Australia’s largest banks can’t agree on where the cash rate lands in 2026 — a split that matters more than the number itself. When the price of money is ambiguous, strategy becomes a game of ...Read more
Banking
Brokers own the mortgage funnel: Why a 77% share is reshaping bank strategy in Australia
Australia’s mortgage market has quietly consolidated around one gatekeeper: the broker. With brokers facilitating roughly 77% of new home loans, distribution power has migrated from bank branches to ...Read more
