By Rob Starr, Content Manager, Big4.com
PwC’s financial services leader Hugh Harley said PwC’s Major Banks’ analysis showed the tough conditions facing Australia’s big four banks.
“After two years of double-digit profit growth, the Australian banking majors are back to modest single-digit growth in FY12. That’s what happens when a competitive industry with excess capacity collides with low credit demand,” he says. “Rising bad debt expense – up 16.1 per cent over the year – certainly hasn’t helped profit, although some of the increase comes from offshore so the Australian economy’s position isn’t as tough as the number suggests.”
Average net interest margins fell by 8 basis points for the year. Credit growth remains subdued, only growing by 4.0% in the year to September, faster than the 3.4% recorded a year earlier. Business credit has generally picked up a little.
Core deposits have grown 10.2 per cent over the year. The major banks lost market share in business deposits, down 54bps to 79.8 per cent, but won back 92bps of share in household deposits to 82.4 per cent. The banking system used the deposit growth to fund all new lending, but it remains reliant on wholesale funding markets to refinance previous wholesale funding.
“So long as the major banks continue to focus on incremental revenue growth through customer engagement, coupled with discipline on costs, they should be able to continue to eke out modest growth in profit. Look out for plenty more competition in deposits, new payments instruments and in harnessing technology for the benefit of customers. Don’t forget some of the smaller players are on the march as well,” Harley said.