The latest ADI data from APRA has shown that net profit across the banks for the year ended 31 March was $29.4 billion, 14.1 per cent down on the year before.
Aussie banks’ cost-to-income ratio increased to 55 per cent for the year, compared to 51.9 per cent in the previous comparative period – with a significant increase in charge for bad or doubtful debts cited.
APRA reported charges for bad debts had risen by more than fourfold to $5.4 billion in the March quarter, while operating incomes had fallen and expenses rose.
Meanwhile the population of ADIs remained stable over the year to March. One ADI license had been revoked (EECU Limited) during the first quarter of 2020, bringing the total number of licensed ADIs in Australia to 147.
Industry return on equity decreased to 9 per cent for the year ended 31 March, from its prior 11 per cent in the year before.
APRA said effects of the pandemic, continued margin pressures from the low-rate environment, subdued credit growth and higher operating expenses had weighed on profitability and are expected to continue to do so in the short to medium-term.
Abrupt changes to capital markets, negative sentiment due to altered economic conditions and pressure to maintain dividend rates despite declining profitability are also forecast to place capital strain on ADIs.
Total capital and common equity tier 1 capital ratios were 15.7 per cent and 11 per cent respectively.
Although the banks were reported to remain well capitalised by historical standards, the capital ratio for some had decreased from the December quarter, likely reflecting early impacts of COVID-19.
