Australia’s major banks have reported $15.5 billion in combined after-tax profits for the first half of FY25, according to KPMG’s Major Banks Half Year 2025 Results Analysis.
The results highlighted a solid performance amid mounting competition, cost pressures, and intensifying scrutiny of lending practices.
“The first half results reflect a continuation of the majors’ steady 2024 performance,” said David Heathcote (pictured left), KPMG Australia’s head of banking and capital markets.
“While profits and revenue continue to grow, the results demonstrate the challenge faced by the majors of ongoing competition amongst themselves and other lending institutions together with operating cost pressures.”
Operating income and net interest income rose by 4.3% and 4.8% respectively year-on-year. However, both were flat compared to 2H24, suggesting earnings momentum may be slowing.
Average net interest margin increased by just two basis points compared to 1H24 and fell by one basis point compared to 2H24.
“The majors all cited persistent competition as a key driver of margin pressure, including other banks acquiring market share,” Heathcote said.
Notably, the combined household lending market share of the majors declined 0.64% over the past 12 months, continuing a long-term 5% drop since mid-2019.
This aligns with recent concerns from brokers, who said some banks are prioritising direct lending channels over third-party distribution—raising fears about long-term broker support and competition across mortgage origination channels.
The major banks’ $22.7 billion in operating expenses mark a 6.2% increase year-on-year and a 2.9% increase from 2H24. The cost base was largely driven by staff growth and accelerating tech investment, KPMG reported.
Personnel costs rose 6.2%, while technology expenses jumped 10.7% from 1H24. Headcount rose by 3.4% over the year.
“With technology and digital transformation continuing to attract significant investment across the sector, there is a natural focus emerging on how these efforts contribute to long-term value particularly as institutions navigate rising costs, growing teams, and a competitive revenue environment,” said Adrian Chevalier (pictured right), consulting partner at KPMG Australia.
Digital innovation—including growing use of generative AI—was cited as a key area of strategic focus.
Expected credit loss (ECL) provisions rose slightly to $22 billion, though the average ECL ratio decreased to 0.65% of gross loans—indicating stable portfolio health.
The major banks attributed stable credit performance to ongoing house price growth and resilient customer behaviour, despite sustained cost-of-living pressures.
Non-performing loans also declined, supported by a cautiously optimistic economic outlook.
Capital adequacy remains above regulatory minimums. However, the liquidity coverage ratio (LCR) dropped to 133.3%, and the common equity tier 1 (CET1) ratio declined to 12.1%.
Despite this, banks declared $469 million in dividends for the half, with an average increase of 2.6% per share compared to 1H24.
“While these results demonstrate the continued strength of the majors’ ability to grow their asset bases while maintaining strong credit quality, the impact of continued competition and escalating operating costs are seen in the modest increase in profit over the first half and in turn will put increasing focus on the major’s ability to generate an enhanced return from their investments, including technology spend,” Heathcote said.
The results come amid rising public debate about bank profitability, with critics arguing banks are posting robust margins and dividend growth while households face elevated borrowing costs and inflation-driven pressures.
