Recent reports from Australia suggest that initiatives aimed at increasing innovation and competition in financial services is eroding the entrenched position of the major banks in the region. Growth is being affected by increased flows to the non-bank sector. According to PWC, the competition impact is such that if non-banks continue to grow at current rates, regulators will need to keep a close eye on the implications for the system.

Cash earnings

Four separate research and impact analyis reports - from Deloitte, EY, KPMG and PwC  - have highlighted that Australian banks are likely to face pressure for the foreseeable future. The analyses show that headline cash earnings of Australia and New Zealand Banking Group (ANZ), the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac Banking Group (Westpac) dropped by 5.5 per cent year-on-year, from $31.2 billion to $29.5 billion in the full year 2018. During this same time period, lending grew at just 3.1 per cent in the 2018 financial year. This figure represents the lowest growth rate in a decade.According to the PWC report: “if non-banks continue to grow at this rate, regulators will need to keep a close eye on the implications for the system”.

Challenges

Australian banks have been grappling with lower income growth and increased remediation costs. The research findings from Deloitte, EY, KPMG and PWC all identify five factors as ongoing challenges to traditional banking. These factors are regulatory reform, ongoing financial services royal commission, conduct challenges, customer remediation and a more open banking regime.