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Stark reality of challenges faced by major banks shown in 2019 results - PwC

by PwC | 14 Nov 2019
The 2019 financial year results for Australia’s four major banks reveal the stark reality of the sustained challenges facing the banking industry. 
While not unexpected, industry headwinds have built to a level where results have deteriorated across the board. 

PwC’s 2019 Major Banks Analysis found full year cash earnings were at the lowest level since 2012, and return on equity fell to 11%, a level not seen since the 1990s.

PwC’s Banking and Capital markets leader Colin Heath, says that 2019 was the year that ongoing challenges translated to financial outcomes.

“The industry challenges so much discussed are now a stark reality in the major banks’ 2019 financial results,” he said. 

“Up to this point, the momentum supported by the industry’s core foundations drove returns that remained surprisingly strong. 

“This year that has changed, with return on equity falling to the low 10% range in the second half. While heavily impacted by notable items, this is much more in line with what we see in the UK.”

The largest and most immediate challenges were the costs of remediation and reshaping the business (collectively described as ‘notable items’), which reduced after-tax earnings by over $4b for the year. 

However, beyond this, the core of the business demonstrated the strains that bankers have been feeling for some time: net interest margins (NIM), balance sheet growth, market share, other operating income (OII) and credit costs were worse than last year, and despite efforts on the cost base, expenses were only flat.

What makes this harder for the banks, as they have highlighted in their recent announcements, is that the trends remain negative, and risks - given the overall environment - remain distinctly skewed to the downside. 

This is especially so if, as remains possible, interest rates continue to decline, which is discussed further in PwC’s forthcoming Hot Topic.

But this new era is not without opportunity. The strategic foundations underlying major-bank franchises remain strong and are what banks are leaning upon to navigate through this period. So, the emphasis on transformation, preparation and, most critically, execution is critical - building platforms for the era to come.

Access PwC’s Major Banks Analysis for further in-depth analysis of the results from the major banks.

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