KPMG’s Major Australian Banks Year-End Analysis Report 2018-19 finds that the four majors reported a combined cash profit after tax from continuing operations of $26.9 billion, down 7.8% on FY2018.
That was worse than what we saw in the first half from the Commonwealth, NAB, Westpac and the ANZ when earnings fell 4% to $14.5 billion.
It was the second year in a row that full-year earnings have fallen for the big four. A year ago KPMG reported that big four reported a cash profit after tax from continuing operations of $29.5 billion for the 2018 full year, which was down 5.5% from 2017.
Three of the four all cut the dividends to shareholders in various ways – absolute reductions in the case of the NAB and Westpac (and a maintaining of 100% franking) while the ANZ cut its franking to 70% on an unchanged dividend.
The Commonwealth paid an unchanged 100% franked full-year dividend of $4.31 a share.
Or rather the second half saw a surge in customer remediation costs – a rise that the Commonwealth Bank will probably say something about in its first-quarter trading update shortly.
KPMG compiles the report (as do other firms) twice a year. The full-year report was issued hours after the NAB revealed a 13.6% slide in profit to 44.8 billion.
Echoing the comments from the most recent Financial Stability Review from the Reserve bank which pointed to continuing pressure on margins for the banks, KPMG strategy partner Hessel Verbeek said revenue is falling and costs are rising, according to KPMG
“The majors’ profits are down significantly as a result of shrinking margins in a low-interest-rate environment and higher costs, including refunds to customers, in the aftermath of the royal commission,” he said.
And there’s no end in sight for the big banks.
“The ongoing effects of the majors’ customer remediation programs continue to negatively impact financial results, which are routinely called out as ‘notable items’ within their cash profits,” the consultancy firm reported.
“There is a continued trend of re-allocating investment spend towards compliance, regulatory and customer remediation costs, forcing investment and resources away from enhancing technology and digitalisation priorities,” KPMG said.
Low-interest rates are not helping either and all four reported falls in their net interest margins.