The big four banks reported a combined $31.5 billion of cash profit after tax, representing an increase of 6.3 per cent of the same period last year, according to separate analysis reports from KPMG and EY.
Thus far, the ‘majors’ had withstood headwinds of “a backdrop of subdued economic growth, slowing demand for credit, continued margin pressure and high regulatory and capital costs”, said KPMG Australia head of banking Ian Pollari.
However, ensuring growth in the future would mean streamlining business operations, navigating a transition to digitisation, managing regulatory compliance and rebuilding trust, the accounting firms stated.
“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,” Mr Pollari said.
“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.”
Similarly, EY Oceania banking and capital markets leader Tim Dring said the major banks had proven they could “maintain profits against a challenging backdrop”.
“However, they must now show they can successfully execute on the digital, customer and regulatory compliance agendas to deliver long-term performance,” Mr Dring said.
“As they continue to reshape their businesses, the banks will need to focus on implementing strategies for sustainable and profitable growth, with a priority on embedding the right customer experience fundamentals.
“At the same time, banks need to optimise their balance sheets by using technology to improve services and reduce cost, manage risk and regulatory compliance, and rebuild trust.”
To do so, banks would need to strike a “delicate balance” between growing the business while maintaining the safety of customers and the bank, Mr Dring said.
“The banks that are able to execute well in each of these areas will be best placed to weather continuing headwinds and seize new opportunities as they arise,” he said.
KPMG’s Mr Pollari said streamlining to lower-cost operating models would give banks room to enhance its customer experience.
“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,” he said.
However, technology could also present “substantial opportunities” for big banks, Mr Pollari said.
“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,” Mr Pollari said.