KPMG’s Australian Major Banks Full Year 2024 Results Analysis finds that the Majors reported a combined profit after tax of $29.9 billion, down 5.7 percent compared to FY23. Return on Average Equity also decreased by 80 basis points to an average of 10.9%.
David Heathcote, KPMG Australia’s newly appointed Head of Banking & Capital Markets, commented: “The Majors’ full year results demonstrate resilience despite competition continuing to squeeze margins during a period of sustained ongoing economic uncertainty. The Majors continue to grow their asset bases, and credit appetite remains strong despite cost-of-living pressures.”
The Majors reported growth in total assets of 4.4 percent over the last 12 months, with loan portfolios growing 5.7 percent. Business lending was a key driver of growth with portfolios increasing by 5.3 percent, while consumer lending grew by 2.1 percent, indicating a level of business and consumer confidence together with the increasing likelihood of rate cuts as opposed to any further increases.
Total operating income remained flat at $90.0 billion, however total net interest income decreased by 0.5 percent compared with FY23 to $74.4 billion. The Majors cited strong competition from both existing and new competitors, including non-bank lenders, as a key driver of the continued compression in margins. This resulted in average Net Interest Margin (NIM) decreasing by 7 basis points to 180 basis points.
The average cost to income ratio increased by 336 basis points to 49.2% from FY23. This is in line with the overall increase in total operating expenses by 5.3 percent to $44.0 billion, driven by inflation on core expenses such as personnel, offset by a decrease in investment spend.
Over the past 12 months, the total headcount increased by approximately 0.8 percent, and personnel expenses increased by 3.5 percent to a total of $25.4 billion.
While overall investment spend decreased by 0.7 percent, which reflected the completion of several large programs, technology expenses have increased significantly by 15.2 percent to $8.9 billion. The Majors are accelerating digital transformation initiatives in response to customer demand for innovative banking solutions with an increased focus on Generative AI.
Janine Woodside, Financial Services Transformation Partner, KPMG Australia said: “We are at a critical digital juncture. The ability to relentlessly orchestrate multiple, complex, concurrent changes whilst harnessing new technology will increasingly differentiate banks. And customers stand to be the winners.”
The Majors’ expected credit loss (ECL) provisions grew by 2.8 percent in FY24 to $21.5 billion, which was largely in line with the overall portfolio growth. ECL as a percentage of gross loans and advances decreased by 2 basis points from FY23 to an average of 0.65%. The Majors cited continued growth in house prices and customer resilience despite the ongoing cost-of-living pressures.
The anticipated mortgage cliff appears to have passed without a significant decline in credit quality, which may partly be attributable to increasing growth in asset prices in many areas. Approximately 92% of the housing portfolio is in variable loans at the end of FY24, compared with 66% at the end of FY22, which can provide opportunities for customers to secure loans at more attractive rates given the yield curve moving from flat to negative.
Despite overall stability in credit quality, non-performing loans represent an increasing share of the portfolio across the Majors. Additionally, the Majors’ stressed credit exposures in business lending are primarily concentrated in the sectors of construction and agriculture.
Capital and liquidity ratios across the Majors remain well above regulatory minimums, demonstrating balance sheet and liquidity strength. The average Liquidity Coverage Ratio increased to 134.5%, up by 0.2 percentage points from FY23 and the average Common Equity Tier 1 ratio is 12.3%, a decrease of 19 basis points compared with FY24.
The Majors declared higher dividend payments in FY24 with an increase in the average dividend per share of 1.82 percent compared to FY23.
David Heathcote commented: “Australia’s Major banks are understandably looking at ways to reduce their cost base, as they look to preserve profits in a highly competitive environment where there is a continuing likelihood that NIM will remain under pressure in the medium term. Investment in technology and digitisation is happening at pace with the aim of creating sustained efficiencies together with an improved and differentiated experience for their clients. In the short term, this investment may have an adverse impact on profitability until the benefits are evidenced.”
Key highlights of the results are as follows:
- The Majors reported a combined profit after tax of $29.9 billion, down 5.7 percent compared to the FY23.
- Average net interest margin for the Major Banks was 180 basis points, a decrease of 7 basis points from FY23 driven by the continued impact of competition.
- The average cost to income ratio of 49.2% increased by 336 basis points from FY23. This movement is consistent with the respective changes in total operating expenses over the same periods.
- Average provisions as a percentage of Gross Loans and Advances decreased by 2 basis points to 0.65% which is indicative of the continued strength of the Majors’ portfolio credit quality.
- The average Liquidity Coverage Ratio (LCR) increased to 134.5%, up 25 basis points from FY23. The average CET1 ratio across the four banks has decreased by 19 basis points to 12.3% from FY23.
- Return on Average Equity decreased in FY24 compared to FY23 by 80 basis points to an average of 10.9%.
For further information
Ashford Pritchard
KPMG
0411 020 680
apritchard2@kpmg.com.au
