Last week’s first-half profit results for the major banks, while positive, show that increased capital requirements and competitive pressures are taking their toll, says KPMG.
KPMG has released its analysis of the first-half profits of the major Australian banks, which shows the four companies delivered a combined result of $15.63 billion after tax for the half-year, up 6.2 per cent on the prior corresponding period.
KPMG said the banks’ main focus is to arrest the decline in return on equity (ROE), which improved 28 basis points on the second half of the banks’ 2016 financial year.
“ROE levels still remain low compared to historical industry returns as Australian bank capital levels are above minimum requirements,” it said.
“We expect, however, that any future regulatory measures calling for greater capital will continue to exert downward pressure on returns of the majors.”
In order keep ROE healthy, the major banks are seeking to reduce costs, strategically rebalance portfolios and offload lower margin and capital intensive businesses, KPMG said in its report.
“This realignment of investment, combined with lower credit impairment charges, has contributed to the record profit for the half.
“As the economic outlook remains challenging, the majors will continue to focus on capital efficiency, productivity and further refinement of their business models.”
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