Competition heating up for big four, say analysts

Analysts from Ernst & Young (EY), PwC and KPMG have reported on the big four’s 2021 full-year results, after NAB released its results on Tuesday (9 November).

A strong housing market, better-than-expected impairment outcomes through the pandemic and fewer notable expense items meant aggregate cash earnings were up by around 55 per cent across the major banks, to $26.8 billion, but 2.3 per cent down on the financial year 2019.

However, revenues and profitability are under pressure, as net interest margins declined by 3 basis points on the prior year, to 1.86 per cent.

Revenue across the banks was somewhat flat, with total operating income being up 0.1 per cent on FY20 and down 1.5 per cent on FY19.

PwC’s analysis noted total lending across the major banks had grown by 3.8 per cent, lagging domestic system growth.

Across the big four, housing lending grew by 5.2 per cent on the year before, according to EY and KPMG.

But competition in the space is intense, with PwC noting some of the major banks had been hampered by loan processes, ceding mortgage share to the non-major players.

KPMG’s analysis on the other hand portrayed uncertainty around whether the banks would continue to see mortgages growth, especially if rates go up in FY22.

ANZ for example, saw its home loan book shrink by $3 billion in the second half of FY21, down to $278 billion, as its systems were overwhelmed by a spike in activity.

Sam Garland, banking and capital markets leader at PwC Australia reported non-majors had managed to grow their lending faster in absolute terms than three of the big four, while buy now, pay later giant Afterpay has become subject of the largest acquisition in Australian history.

“The banks remain in an extremely competitive position, but the market is changing,” Mr Garland said.

Tim Dring, EY region banking and capital markets leader, Oceania commented: “Not all the major banks have benefitted equally from the surge in housing credit, with strong competition and volume processing challenges resulting in a marked divergence in home loan performance between individual banks.”

Mr Dring believes the market will evolve more rapidly over the next few years, as open banking, big data and other tech components come to play.

Competition from fintechs and big tech firms is also expected to push the banks along on their simplification and digitisation agendas, particularly in the payments space, where buy now, pay later has exploded.

“Tailored, customer-centric value propositions, speed – reducing the time to yes – and simplicity will be key factors to winning new home loan customers in future,” Mr Dring said.

Mr Garland from PwC echoed him, commenting investments in technology and new services are “critical”, with a rise in acquisitions, new products and partnerships over the past year.

Expense-to-income ratios, excluding notable items, rose to 48 per cent in FY21.

Ian Pollari, head of banking at KPMG Australia commented the banks will need to prepare for a “future that will be very different to the past”, while facing the challenge of continuing revenue growth.

“The majors are all looking at new ways to create value that will better serve their customer needs while opening up growth opportunities,” he said.

“This will require them to genuinely innovate around their business models at the same time as ensuring their operating models are future-fit.”

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Sarah Simpkins is the news editor across Mortgage Business and The Adviser.

Previously, she reported on banking, financial services and wealth management for InvestorDaily and ifa.

You can contact her on This email address is being protected from spambots. You need JavaScript enabled to view it..