Big four banks’ combined profit up 6.4% despite tough market conditions – KPMG

ANZ, NAB, Commonwealth Bank and Westpac registered profits of $31.5bn between them for the 2017 full year, an increase of 6.4% on 2016.

KPMG has released its Major Australian Banks Full Year Analysis Report 2016-17, which reveals how this profit gain was achieved against a backdrop of a challenging margin environment, rising capital levels and ongoing regulatory, legal and compliance costs.

Ian Pollari, KPMG Australia’s Head of Banking, explained: “Stagnant wage growth and high levels of underemployment are keeping a lid on economic growth and in turn, demand for credit, with growth moderating to mid-single digits.

“Consequently, the majors will focus their efforts on cost management, simplification and investing in digital capabilities, whilst ensuring debt serviceability and disciplined pricing is maintained, to preserve future earnings.”

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The four banks recorded net interest income growth, increasing by 1.7% to $61.3bn in the year, while non-interest income also increased, by 3.8% to $24.6bn, mainly due to improved market conditions and one-off asset disposals.

Pollari advised banks to be targeted with their investment in new technologies and balance short-term cost pressures with longer term gains to be had from these projects.

He added: “Ultimately, this focus on cost management will provide greater capacity for the majors to invest in enhancing the customer experience, which will form a critical part of their response to growing competition from fintech firms, as well as the looming threat posed by the technology giants.

“In the medium to long term, there are substantial opportunities for the banking industry to make its customer engagement and operating models more efficient through the application of enhanced process automation, machine learning and cognitive computing. The key will be augmenting this capability with a human element.”