Cash distracts banks at profit time

Ian Rogers
Steven Cunico, partner, Deloitte Australia
Bank profit season: it's a buffet, with indigestion on the menu in 2019.

Across the Big Four banks these were as much as A$30.9 billion "from continuing operations excluding 'one-offs' and notable items", which Deloitte in their survey of the four big bank results label "an estimate".

Cash Net Profit after Tax from continuing operations is a more stable metric in the sector, and this year four rolled into one made $26.9 million, down $4 billion.

Statutory Net Profit after Tax, now we're talking: $26.1 billion and the "continuing operations" cop-out only pushes this to $26.5 billion.

Crummy bank profits are down to lame consumer and business confidence and a compromised banking culture.

"Continuing the trend of the first half results, overall the Australia retail banking divisions of all the major banks suffered declines in cash profit for the full year, reflecting tightening credit conditions, rising competition, and a general economic slowdown," Deloitte said.

"All the majors, except CBA experienced below system mortgage lending growth."

Steven Cunico, Deloitte's banking, treasury and capital markets partner and author of Deloitte's analysis wrote that "what the majors can control is cost," though neither Westpac nor CBA last year did so.

Across the four, the big banks "delivered almost $1.3 billion in productivity savings," Cunico said.

CBA reported productivity savings of $190 million for FY19, NAB $480 million, ANZ $259 million and WBC $405 million.

A less easy cost to control is the credit charge and here accounting changes are a swing factor this year.

Collective provisions as a percentage of credit risk-weighted assets have increased by around 20 to 25 bps over the last year.

All four banks are now reporting their provisions under the revised AASB 9
Accounting Standard, "with banks increasing their provisioning coverage significantly", analysis by Deloitte of the four big banks 2019 results shows.

"The banks' asset quality is showing some signs of stress," Deloitte said, as the ratio of 90 days past due plus impaired to gross lending has increased by 14 basis points compared with FY18.