The Australian major banks (the 'Majors') performance has recovered from last year, on the back of a strong public health response to COVID-19, as well as assertive Government fiscal and policy interventions to support jobs and the economy.

In turn, the Australian banking sector has benefited from an economic performance that has been better than anticipated with household finances in a strong position. As a result, cash profit after tax from continuing operations has increased by 62.3 percent from the previous corresponding period to $13.8 billion.

In this constrained environment where profitability has started to rebound, the challenge will be to balance investors’ ROE and dividend payout expectations, the necessary growth, transformation efforts, and community and customer expectations. Whilst prior period ROE concerns may be partially alleviated with a return towards double-digit ROE in 1H21 and higher payout ratios, sustainability is now a key question of shareholders.

Looking ahead, the earnings pressures facing the Majors will not change over the next reporting cycle as cheap funding facilitated by the Term Funding Facility (TFF) closes on 25 June 2021, putting pressure on net interest margins.

Half-year 2021 results snapshot

An infographic snapshot of the major Australian bank's full year financial results.

An infographic snapshot of the major Australian bank's full year financial results.

Key highlights of the results

  • The major banks reported an increase in cash profit after tax from continuing operations to $13.8 billion, up by 62.3 percent on the corresponding period in 2020. This increase was a consistent trend across each of the major banks and partially driven by releases and non-recurrence of provisions raised in the prior period in anticipation of the forward-looking impact of COVID-19, as well as the absence of major notable expenses.
  • The average net interest margin (cash basis) decreased by 6 bps to 187 basis points. This has been driven by lower lending rates and the bottoming out of low deposit rates, partially offset by cheap funding through the Term Funding Facility (TFF).
  • The average cost-to-income ratio decreased by 3.1 percent to an average of 50.2 percent. Key cost drivers were high personnel costs as the Majors responded to increased sales and service processing volumes as well as continued costs from risk and compliance programs.
  • The average Common Equity Tier 1 (CET1) capital ratio increased 105 basis points to 12.4 percent, driven by capital management initiatives including divestment of non-core businesses, dividend management and improvements in asset quality.

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