Majors may need to focus on specific customers, say KPMG, as margin erosion begins to bite
Bad and doubtful debts held by major banks have increased by 39% since the last financial year to $5.1bn, an analysis of the banks’ full year results by KPMG has found. ‘Further deterioration’ of asset quality was expected in 2017, the report added, as pockets of Western Australia and Queensland were heavily affected by the end of the resources boom. 90+ day delinquencies had only increased by 2.5 basis points however across the major banks.
Overall profits dropped by 2.5% for the major banks, and KPMG found several reasons for this. The average net interest margin fell by 0.8% to 2.02%, just as the banks invested $2.3bn in technology and dealt with higher capital ratios, leading to a 194 basis point drop in return on equity (ROE). “Historically low interest rates continue to restrict the pricing initiatives of the majors”, KPMG’s report commented “placing a drag on interest earning assets.”
Nevertheless, noted the report “household lending remains core to the majors domestic franchises”. Housing credit increased by 4.2%, although the majors saw a small drop in their home lending market share by 87 basis points.
With further bad debts, margin erosion and regulatory pressure unlike to ease in coming years, KPMG argued the banks needed to concentrate on key areas: “looking ahead it is inevitable that the majors will continue to refine their business models, being much more selective on which markets, products and customers to segments to serve”; including exiting markets where appropriate, KPMG concluded.
Top 100 Brokers results are out this week! Get the highlight's of 2016's Top 100 in our celebratory video:
Overall profits dropped by 2.5% for the major banks, and KPMG found several reasons for this. The average net interest margin fell by 0.8% to 2.02%, just as the banks invested $2.3bn in technology and dealt with higher capital ratios, leading to a 194 basis point drop in return on equity (ROE). “Historically low interest rates continue to restrict the pricing initiatives of the majors”, KPMG’s report commented “placing a drag on interest earning assets.”
Nevertheless, noted the report “household lending remains core to the majors domestic franchises”. Housing credit increased by 4.2%, although the majors saw a small drop in their home lending market share by 87 basis points.
With further bad debts, margin erosion and regulatory pressure unlike to ease in coming years, KPMG argued the banks needed to concentrate on key areas: “looking ahead it is inevitable that the majors will continue to refine their business models, being much more selective on which markets, products and customers to segments to serve”; including exiting markets where appropriate, KPMG concluded.
Top 100 Brokers results are out this week! Get the highlight's of 2016's Top 100 in our celebratory video:
