0:571:171:101:43<ANCIENT-WARFARE EXPERT RATES 10 MORE BATTLE...

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ANCIENT-WARFARE EXPERT RATES 10 MORE BATTLE TACTICS IN MOVIES AND TV

While the major banks each saw some semblance of a pre-pandemic earnings haul over the last year, signs of “subdued” lending growth could spell trouble for the sector as non-traditional lenders take a larger share of the personal finance market.

According to newly-released annual analysis of the Australian banking sector conducted by PwC, cash earnings across the sector were up 53.7% to $26.8 billion through the 12 months to November, hitting levels almost identical to the 2019 financial year.

Sam Garland, banking and capital markets leader at PwC Australia, said the rebound was mostly driven by a $12 billion swing in credit costs, and a $2.5 billion reduction in post-tax notable items charges.

But other performance indicators have yet to follow the same trend, as lending growth proves a notable sticking point for the major banks in the face of emerging challengers like Wisr, buy now, pay later players like Afterpay, and even global payment platforms like PayPal.

“The trends we’ve seen in core results for many years around margins, subdued lending growth and non-interest income continued through 2021, and competition is intensifying,” Garland said.

“This really reiterates why investments in technology and new services to transform customer experience is critical, and why we’ve seen a flurry of announcements of acquisitions, new products and partnerships over the last year.”

It’s a pivot that’s been largely embraced by Commonwealth Bank, which over the last month alone has made widespread changes to its product offering in direct response to the threats fielded by its digital competitors.

Earlier this week, CBA announced that it had entered into a partnershipwith — and taken a minority stake of — Silicon Valley AI outfit, H2O.ai, in a bid to become an “AI superpower”.

The week before, the bank announced that its customers would soon be able to buy and hold crypto assets through its CommBank app, becoming the first of the big four to do so.

Regardless, each of the major banks have seen their personal finance offerings stalled over the last year, as consumers worked the market and opted instead for alternatives like Wisr, who booked a revenue increase of 195% last month as demand for personal finance surged.

Garland said the shift has been a marked one over the last year.

“Non-majors grew mortgage lending faster in absolute terms than three of the majors in 2021, we’ve recently seen a multi-billion dollar bank IPO and a buy-now-pay-later company is the subject of the largest acquisition in Australian history, by an international player with growth ambitions,” Garland said.

“The banks remain in an extremely strong position, but the market is changing.”

PwC’s analysis found the average expense-to-income ratio rose to 48% through the 2021 financial year — the highest it’s been in a decade. Given these pressures, Garland said, curbing costs will become critical to keeping the major banks sustainable by maintaining some sort of capacity to invest.

Central to what stands in their way is a cluster of social, economic and industry trends that have for years floated on the periphery, but have over the last year been accelerated by the pandemic.

He said a failure to adapt and embrace transformation, even if only on a moderate level, could spell dire implications for the sector.

“The banks will need to adapt to maximise the vast economic change and investment required for decarbonisation, the implications for them and their customers of the future of work and the mainstream adoption of digital currencies, decentralised finance and serious digital competitors,” Garland said.

“They’ll also need to help customers operate across increasingly fractured geopolitical relationships and consider carefully the societal implications of a k-shaped recovery and housing affordability on their customers,” he said.

“Taken individually, any one of these factors has significant implications for banks. Taken together at the same time is enormous, challenging but could be hugely rewarding.”

Garland warned the sector’s late bloomers, though, not to rush into doing so. He said in the coming months and years “we will be paying attention to the way the major banks balance ambition, rigour and speed.”

“There is no bank not working hard on all of this now. The big question, of course, is whether they will move fast enough — and carefully enough — and how much of the opportunity will be seized by others while they work through this balance,” he said.