"If the housing market does well, Australian banks will do well"

Deep-diving the Big Four's spectacular bounce back from the pandemic, and the role that brokers played in making it happen

"If the housing market does well, Australian banks will do well"


By Mike Wood

The Big Four have made a spectacular rebound from the pandemic, with profits up massively on 2020.

Across the major banks, profits were up 54.7% on last year, totalling $26.8 in NPAT and resulting in a 70% increase in shareholder payouts.

Those numbers are slightly less spectacular when compared to 2019, but for the sector to have responded so strongly to such a seismic economic event is more than impressive.

“At the high level, we are looking at 2019, 2020 and 2021, and if we look at operating income we were very slightly up: 0.1% on last year and down 1.5% on 2019,” said Hessel Verbeek, banking strategy lead at KPMG.

“Now, the wild swing in profit numbers is more of a result of the fact that provisions were taken last year and the ridebacks that were taken this year.”

“The underlying results are less spectacular than the profit numbers suggest.”

One of the major changes year-on-year was the upswing in human resource costs that were required to cope with greater loan volumes due to the ongoing property boom.

With brokers continually facing turnaround time problems with the major banks, the level of investment in people to bring those down was large.

“The one observation that we have is that all of the banks increased their head count significantly this year,” said Verbeek. “There’s been a lot of manual response to increasing loan applications as well as, of course, ongoing remediation work.’

“Despite the improvements in digitisation and automisation, the majority of processes remain reliant on manual inputs, so there’s more work to be done there. We’ve seen that as well in the costs, which went up by 3.6%, reflecting that a lot of work is still manual.”

“It’s fair to say that the majors have been on surge capacity to deal with volumes and to deal with borrowers and brokers. They’ve needed to do that because they haven’t automated end-to-end as much as they are targeting to in the longer term.”

The strength of the rebound from the pandemic that has been seen in the accounts of the Big Four might be a signal to the market that Australia is back in business after Covid.

“The major banks have played a really big role in supporting Australia last year, especially through loan deferrals” said Verbeek. “This year, they have been riding the wave of economic recovery and the results reflect that.”

“If you look at lending, Australia has surged back. Clearly what we are seeing now is less about deferrals and provisions, but it goes back to competition around rates. I think that the fact that interest margins have decreased again is absolutely a result of the banks competing hard for lending volumes.”

“The Australian banks have been relying on mortgage lending much more than banks in other countries. Really, when you’re looking at the major banks, the contribution of mortgage lending to their overall performance is quite large.”

“If the housing market does well, Australian banks will do well. And it has been doing well.”

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