Australia’s big four banks have seen their profits dip after the royal commission unearthed numerous cases of misconduct, and a return to higher profits could be a while off.

ANZ, NAB, Westpac, and the Commonwealth Bank saw their aggregate profits drop 5.5 per cent in the past financial year, down to $29.49 billion, and EY Oceania banking and capital markets leader Tim Dring said their profits could remain under pressure for a while.

“The past year has seen the banks making sizeable provisions for customer remediation programs. However, more provisions maybe required and, as a result, profit growth may remain constrained in the near term,” he said.

Beyond the remediation costs, Mr Dring said the royal commission “reinforced the growing trust deficit” in the financial services industry and battered the banks’ reputations.

The entry of new businesses, the slowing of the housing market, and increased regulation have all also weighed on profits, Mr Dring said.

Bank shareholders also felt the squeeze, with return on equity dropping by 12.2 per cent on the previous comparable period.

Individual results mixed

The big four banks’ aggregate results were down, but the story for the individual banks shows varied performance.

• Commonwealth Bank saw profits fall 4 per cent.
• Westpac remained relatively flat with an increase of 1 per cent.
• ANZ suffered a 5 per cent drop in profits.
• NAB managed to grow profits by 5 per cent, bucking the downward trend.

Competition to remain 

Mr Dring said the business environment for banking is changing “rapidly” and new laws designed to support competition and help new innovative businesses enter the market will keep pressure on the banks.

The introduction of ‘open banking’, which will make it easier for consumers to transfer their data from one financial services provider to another, will exacerbate this.

Fellow accounting and consultancy firm KPMG said banks will need to balance their increased remediation and compliance costs with investment into new ways to do business – something many are failing to do at the present.

KPMG banking strategy partner Hessel Verbeek said banks are currently focusing on compensation for wronged customers and new compliance regimes to stop things going wrong in future, and this is stifling their investment in innovation.

“Trade-offs will inevitably need to be made,” he said.

EY’s Mr Dring said the biggest challenge for the banks will be not just to balance these expenses, but to do so while rebuilding the community’s trust in banking and “better align” customers’ expectations with the banks’ operations.