Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 434

Australia’s major banks go from turnaround to transformation

Australia’s big four banks (the Majors) have seen a turnaround from last year, as the economy entered a new phase of its COVID-19 pandemic response. After the Majors played a significant role in supporting Australia’s recovery in 2020, they benefited from the country’s improved economic performance in 2021. But now they need to turn their attention to transformation as they look to their future performance.

KPMG’s Major Australian Banks Full Year Analysis Report 2021 shows the Majors reported a combined cash profit after tax from continuing operations of $26.8 billion in the last financial year, up 54.7% on FY20, but down 2.3% on FY19.

However, the underlying performance trajectory is less turbulent than the headline numbers suggest.

Asset writebacks in a recovering economy

Writebacks of collective provisions of $1.7 billion this year, compared to large collective impairment charges totalling $6.9 billion in 2020 in response to COVID-19, have had a big impact on the shape of the Majors’ profit results. Total operating income (on a cash basis) was up 0.1% on 2020 and down 1.5% on 2019. This almost flat revenue picture is more consistent with the single-digit percentage decline of cash profits between 2019 and 2021.

In 2021, the banks shifted their focus from economic support to recovery.

The most recent results show they will be moving forward with reinforced balance sheets. While the Majors have resumed more generous dividend payments, they continue to retain profits and proceeds from simplification divestments to further raise their CET1 ratio (Tier 1 capital) by 1.31% to an 'unquestionably strong' 12.7%. They have also managed to raise their capital levels while collectively buying back $13.5 billion worth of their own shares.

On the flip side, costs remain stubborn. Even though the Majors remain committed to their long-term cost efficiency targets, they have been unable to structurally reduce costs in 2021. Excluding notable items, total operating costs increased by 3.6% to $38.2 billion. This is due to several factors including regulatory compliance requirements, ongoing customer remediation and increased processing volumes that have resulted in strong FTE growth across all the Majors.

Hitting a transition point

Having stabilised themselves from the initial impacts of the pandemic, Australia’s banks now arrive at a new transition point. In 2022, they will need to start delivering on their transformation programmes and positioning for a future that will be very different to the past. 2021 saw growth across both housing (up 5.2% on 2020) and non-housing lending (up 1% on 2020). Much of this growth has been the result of strong increases in house prices and underlying economic recovery. It is unclear if these trends will continue, especially if interest rates are raised in the 2022 financial year.

To successfully transition to post-pandemic performance, the Majors will need to lower their operating costs while continuing to invest in growth. The transformation imperative includes a revenue challenge. The Majors are all looking at new ways to create value that will better serve their customer needs while opening up new revenue opportunities.

It will be a delicate balancing act, one that will require the banks to re-think and transform their operations while genuinely innovating around their business models.

See the longer report for more detail, here KPMG’s Major Australian Banks Full Year Analysis Report 2021.

Hessel Verbeek is Partner, Banking Strategy Lead and Maria Trinci is Partner, Financial Services at KPMG. This article is general information and does not consider the circumstances of any investor.

 

3 Comments
Anthony
November 26, 2021

I bank with and invest in both ANZ and Macquarie. As a customer I'm not overjoyed with either. As an investor I would only be concerned about their customer service if it had a material impact on their share price and/or dividends.

I expect it must be difficult for a regional bank to scale a brand that has been built on a high level of personalised customer service. It might be interesting to understand how sensitive Australian bank customers are to changes in service levels, particularly as interest rates rise. In the current climate of inflated house prices and rising interest rates I expect most highly leveraged borrowers would prioritise the cost of servicing their mortgage over the customer service they receive. It seems the majors are well positioned in anticipation of a rising interest rate environment. If the cost of servicing a loan becomes the most important consideration for borrowers, the regional banks may not fare quite as well.

david edwards
November 18, 2021

I do wish commentators would include mention of the smaller banks in their analyses...esp. Bendigo, which has 5-star customer service (and it's a Bank!) and similar healthy div yields to the Big Four. A Cinderella that gives better service AND sound financials to shareholders.

Allan
November 17, 2021

"[...] The Majors are all looking at new ways to create value that will better serve their customer needs while opening up new revenue opportunities. [...]" New ways to create value? If it ain't broke (with 'it' being the crafty Cohen Brown method of upselling which is exposed in Adele Ferguson's beaut book, "Banking Bad"), like myriad those Major Banks' customers taken to the cleaners, then why fix it? When a government robs Peter to pay Paul, it can always Bank on Paul coming to the Party.

 

Leave a Comment:

     

RELATED ARTICLES

Among key trends in Australian banks, one factor stands out

Why ASX miners will handily beat banks in the long-term

Looking beyond banks for dividend income

banner

Most viewed in recent weeks

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Latest Updates

Property

Affordability issues cap further house price rises

If the RBA starts cutting rates, many believe house prices will rebound strongly. Yet, the numbers on affordability suggest prices can’t rise much further without making housing impossibly expensive for most Australians.

Superannuation

How to shift into pension mode

How do you start accessing your super funds when you stop working, or maybe even before you stop working? This covers the basics, including how to switch your super accumulation account to an account-based pension.

Taxation

Reform overdue for family home CGT exemption

The capital gains tax main residence exemption is no longer 'fit for purpose', due to its inequities, inefficiency, and complexity. Here are several suggestions for adapting or curtailing the concession.

Investment strategies

The two key risks facing investors

In 2024, markets were buoyed by decent economic growth and US rate cuts, even as valuations became stretched. This year, more resilient portfolios may be needed to tackle risks from higher bond yields and market concentration.

Superannuation

Why systemic risks from ‘Big Super’ may be overplayed

What are the implications of ‘Big Super’ for our economy, financial markets and population? New research looks at the beneficial, detrimental and debatable aspects, spanning current impacts and potential future developments.

Property

What AI’s ‘Sputnik moment’ means for data centres

What we know about DeepSeek so far could be a mixed bag for data centre owners like Goodman Group. However, it's worth remembering that AI adoption isn't the only thing that matters to the industry's outlook.

Gold

Will 2025 be another banner year for gold?

Last year, gold surged 38% higher in Australian dollars, fuelled by investment demand and global risks. This year's outlook suggests potential for continued gold strength amid geopolitical uncertainties and currency vulnerabilities.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.