While Australia’s major banks have reported a decline in cash profits for the first half of 2020, down 42.6% year on year, a KPMG report has highlighted the opportunity presented by the COVID-19 pandemic.
The big four are positioned to play a critical role in supporting the economy through the crisis and helping facilitate its recovery, especially as the uncertainty around the severity and duration of the financial downturn has caused creeping country-wide anxiety; in short, the banking industry has been given a unique opportunity to “rebuild community trust and purpose, much of which was lost during the royal commission”.
“The biggest challenge for the majors will be balancing the necessary support for the recovery effort and in doing so, restoring their reputations, whilst at the same time navigating a number of structural headwinds,” explained Ian Pollari, KPMG Australia’s head of banking.
“[Additionally,] the majors have the opportunity to use COVID-19 as a catalyst to accelerate their digital transformation, simplification and operational resilience efforts.”
However, the report emphasised that even with heading into this economic downturn from a “relatively strong position” from a liquidity, funding and capital perspective as compared to the lead up to the Global Financial Crisis, the effects of this period will be “long-term and profound”.
The KPMG report foresees an adverse impact on revenue performance, loan growth and asset quality in fiscal year 2020 and beyond.
Hessel Verbeek, KPMG strategy partner of banking, further tempered the report's optimism around the reputational opportunity for the big banks with a warning against premature optimism.
“While the majors have proven resilient so far, it is too early to estimate the full impact of the COVID-19 crisis on their 2020 performance,” he said.
“The majors will have to contend with the demands of customers who want relief from loan repayments, a government which wants credit made available, a regulator which wants unquestionably strong balance sheets and shareholders who want strong profits and dividend payouts.”
However, banks which “recognise the new reality” and take “bold, proactive measures” to reset their operating models and maintain those positive changes even after the crisis dissipates will not only come out on the other side sooner than the others, but be in a stronger position to capitalise on future opportunities.