Major Australian Banks: Half Year 2016 Results Analysis

Major Banks: Half Year 2016 Results Analysis

The Australian major banks reported combined cash earnings of $14.8 billion for the half year, down 3 percent, in the face of increasing non-performing loans and higher liquidity and capital requirements.

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Difficult economic and market conditions, coupled with the continued upward trajectory of regulatory capital are now starting to bite for the majors, underpinning a softer half year result.

Key components of the results

Key components of the results are:

  • Return on Equity has fallen by 153 basis points to an average ROE of 13.8 percent. This compares to ten years ago when the majors had an average ROE in excess of 20 percent, reflecting the impact of increasing levels of capital over an extended period.
  • Common Equity Tier 1 (CET1) average capital ratio rose by 43 basis points to 10.1 percent of risk-weighted assets (RWAs), reflecting the impact of increased regulatory capital requirements.
  • Net interest margins are up by 1 basis point to 2.04 percent, as the majors were able to preserve their margins through mortgage re-pricing, offset by competitive pressures, higher holdings of liquid assets and the prevailing low interest rate environment.
  • The average cost to income ratio increased by 194 basis points to an average of 44.6 percent, driven by the need for banks to continue to invest in meeting regulatory compliance obligations and enhancing their digital capabilities. 
  • The major banks’ aggregate charges for bad and doubtful debts increased by $834million to $2.5billion in the first half (up 49 percent 1H15). Continued discipline on pricing, debt serviceability and loan to value ratios will be important to ensure the major banks’ credit quality is maintained.

Results snapshot infographic

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Major Australian banks' results

KPMG’s Major Australian Banks Results Analysis examines the financial results of the four major Australian banks.

 
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