Major Banks: Half Year 2017 Results Analysis | KPMG | AU

Major Australian Banks: Half Year 2017 Results Analysis

Major Banks: Half Year 2017 Results Analysis

Australia’s major banks reported a cash profit after tax of $15.6 billion for the 2017 half year, up 6.2 percent compared to the first half of 2016. The positive result was achieved in spite of the challenging environment of rising regulatory capital and margin erosion.

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In the face of increasing global geo-political uncertainty and subdued local market conditions, the majors continue to reshape their businesses in response to a complex operating environment.

Key components of the results

  • Returns on equity increased by 28 basis points to an average ROE of 13.9 percent, a good performance given ongoing pressure on capital.
  • Common Equity Tier 1 (CET1) average capital ratio rose by 16 basis points over the first half to 10.02 percent of risk-weighted assets (RWAs), reflecting the impact of increased regulatory capital requirements.
  • Net interest margins are down by 3 basis points compared to the second half of 2016 to 200 basis points (cash basis), with the majors unable to preserve their margins due to heightened competition, higher wholesale funding costs and the prevailing low interest rate environment not sufficiently offset by mortgage re-pricing efforts.
  • The average cost-to-income ratio decreased by 160 bps across the majors to an average of 43.4 percent.
  • The major banks’ aggregate charge for bad and doubtful debts decreased $318 million to $2.2 billion in the first half (down 12.6 percent on 1H16). This is notable given deterioration in specific markets, such as Western Australia, where larger exposures to the mining sector and tougher economic conditions have weakened results.
  • Balance sheet momentum continues to slow, with housing credit growing by 2.6 percent and non-housing credit decreasing by 1.3 percent compared to the second half of 2016. Concerns around high levels of household debt and the housing market more generally have increased, however the overall credit environment remains broadly stable.

Results snapshot infographic

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