Australia’s major banks grew their combined profit in FY26, but a sharp rise in impairment charges suggests borrower stress is beginning to show as higher interest rates flow through the economy, according to KPMG.
KPMG’s Australian Major Banks Full Year 2026 Results Analysis found the majors reported combined profit after tax of $31.2 billion, up 4.7% on FY25. Return on average equity rose 40 basis points to 11.1%.
While arrears and provisions remain low relative to the size of the banks’ loan books, impairment charges rose 56% over the year. Specific provisions climbed 10.1% and expected credit loss provisions rose 5.9% to $23.4 billion. KPMG said this reflects a more cautious view of the economy and of borrowers’ ability to keep up repayments.
David Akers, KPMG Australia’s national financial services leader, said: “As inflation and elevated interest rates continue to work through the economy, the key question for the sector will be how long households and businesses can continue to adapt to cost pressures before they translate into pronounced changes in lending activity and credit quality.”
Conditions have tightened further since the banks’ reporting periods closed, with the Reserve Bank of Australia (RBA) lifting the cash rate to 4.85% on 3 November, its fifth increase of 2026.
Despite the rise in provisions, the majors remain well capitalised on average. The average common equity tier 1 (CET1) ratio eased 5 basis points to 12.1%, and the average liquidity coverage ratio rose 25 basis points to 134%, both well clear of regulatory requirements.
Lending portfolios grew 5.4%, with business lending up 12.2%, nearly three times the 4.3% growth in consumer lending, which includes home loans. Customer deposits rose 7.1%, helping fund that expansion.
Net interest income rose 3.5% to $81.6 billion, while net interest margin eased slightly to 181 basis points as the majors fought harder for loans.
Technology expenses rose 15.8% to $11.4 billion as the banks invested in modernising platforms, data, automation and generative AI, along with fraud and scam protections.
“The next frontier of banking transformation isn’t about deploying more technology,” said Joanne Bonadio, financial services partner at KPMG Australia.
Akers said the majors faced competing priorities: realising returns from heavy investment in AI and technology, while “maintaining focus on credit quality as economic pressures continue to be felt across the economy”.
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