A number of headwinds are putting the profitability of the major banks under pressure, and the run of record-breaking profits in recent years is likely to have ended, says EY.
Westpac rounded out the major banks' reporting season yesterday with the announcement of a $7.8 billion profit, flat on the prior corresponding period.
According to an analysis of the the four major banks' results by EY, the combined cash earnings were $29.6 billion – a decrease of 2.5 per cent from the same period last year.
The major banks also saw average return on equity (ROE) decline to 13.8 per cent, down almost 2 per cent, said EY.
The full year results reflect a continuation of trends identified in the first half, with softening profit growth, pressure on ROE and deterioration in asset quality.
Bad and doubtful debts for the four major banks have increased by 40 per cent.
EY Oceania banking and capital markets leader Tim Dring said, "While shareholders and markets expect the banks to focus on improving returns, external uncertainties are increasingly challenging their efforts to deliver sustainable growth and profit."
"Cost discipline and efficiency remain top strategic priorities, and we are seeing the banks ramp up efforts to explore and develop advanced technologies to deliver the next phase of efficiencies," he said.
The banks are also looking to "simplify and de-risk" their businesses to optimise capital, Mr Dring said.
In this vein, NAB announced the sale of 80 per cent of its life insurance business in October 2015, as well as the sale of its UK banking operations.
ANZ announced its plans to exit wealth management last week.
In its commentary on the major banks' results, KPMG said slowing growth and the pressure of rising capital requirements is driving the decline in ROEs.
KPMG national head of banking Ian Pollari said, "Persistently challenging market conditions, rising regulatory capital, increasing loan impairments and margin compression are all combining to put downward pressure on industry returns."
"Looking ahead, it is inevitable that the majors will continue to refine their business models, being much more selective on which markets, products and customer segments to serve and those they may seek to pursue with a different approach – or exit altogether," Mr Pollari said.