Australia’s major banks reported a combined cash profit of $26.8 billion for the 2021 financial year, an increase of more than 50 per cent compared to FY20 and nearing the profit levels reached in FY19.
PwC and KPMG have separately issued their latest analysis of the banks after the release of NAB’s full year results, being the last major bank to report.
Both accounting firms highlighted an improvement in the financial results of the majors ahead of an anticipated period of transformation.
PwC said that a significant reduction in economic uncertainty had resulted in a $12 billion improvement in credit expenses for the banks relative to a year ago.
PwC Australia banking and capital markets leader Sam Garland said, “2020 was the year of uncertainty and concern, with credit provisions and capital built up to protect the balance sheet at significant cost to the results.”
“In 2021, we’ve seen much of that reversed or adjusted as the impact of government support, economic improvement and vaccinations reduce uncertainty for now and return results to a more normal level.”
Credit provisions of $20.4 billion for FY21 remained $2.9 billion, lower than FY20 but still $4.1 billion higher than FY19, and charges for notable items (pre-tax) fell from $6.6 billion in FY20 to $3.4 billion in FY21.
Mr Garland noted that large charges for notable items including remediation, business divestment and most recently, credit had driven major movements in results in recent years.
“Looking through all that reveals businesses that have delivered steady profitability, even as they have invested in strengthening their balance sheets, profoundly simplifying their businesses, supporting customers, transforming technology and addressing a large number of regulatory and reputational issues,” he said.
“However, the combination of long-term headwinds in core business earnings, intensifying and broader competition and accelerating changes in the external environment means that the transformation cannot stop there. It is a tremendously exciting but challenging period ahead for the banks.”
KPMG reported that the underlying performance of the banks was less turbulent than the headline numbers may suggest with total operating income on a cash basis up 0.1 per cent in FY21 compared to FY20 and down 1.5 per cent compared to FY19.
KPMG Australia’s head of Banking, Ian Pollari, said that 2021 had seen a turnaround where the banks had shifted their focus from economic support to recovery.
“After stabilising themselves from the initial impacts of the pandemic, they now arrive at a new transition point,” he said.
“In 2022, they will need to start delivering on their transformation programs and positioning for a future that will be very different to the past.”
KPMG also highlighted key performance metrics that it said demonstrate it will be difficult for the majors to maintain their pre-COVID performance.
Average return on equity rose to 9.9 per cent in FY21 but remains 138 basis points lower than FY19, and 3 basis point reduction in net interest margin to 1.86 per cent was identified as a major driver of lower returns.
“The transformation imperative for the banks includes a revenue growth challenge,” said Mr Pollari.
“The Majors are all looking at new ways to create value that will better serve their customer needs while opening up growth opportunities. This will require them to genuinely innovate around their business models at the same time as ensuring their operating models are future-fit.”
