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- PricewaterhouseCoopers (PwC) flags a recovery in banking earnings to pre-pandemic levels as vaccination programs see economies reopen and uncertainty dwindle
- The latest PwC Banking Matters report for the 2021 financial year found cash earnings for major banks grew by 53.7 per cent year-on-year to $26.8 billion
- This comes even as operating expenses grew 3.7 per cent year-on-year to $38.2 billion, with the average expense-to-income ratio for major banks topping 48 per cent
- PwC says government support, economic improvements and national vaccination rates have helped reverse much of the uncertainty that plagued 2020
- According to the report, big banks are emerging strong into an “environment of significant opportunity and profound change”
PricewaterhouseCoopers (PwC) has flagged a recovery in banking earnings to pre-pandemic levels as vaccination programs see economies reopen and uncertainty dwindle.
The international consultancy firm today released its latest Banking Matters report for the 2021 financial year in which it highlighted a sturdy banking recovery despite a rise in operating expenses.
Specifically, the PwC analysis found cash earnings for major banks grew by 53.7 per cent year-on-year to $26.8 billion — a level almost identical to the same time in the 2019 financial year before the pandemic struck.
This comes even as operating expenses grew 3.7 per cent year-on-year to $38.2 billion. The average expense-to-income ratio for major banks topped 48 per cent over the year — 2.46 per cent higher than the year before.
Nevertheless, the increase in cash earnings lifted industry return on equity to 9.9 per cent, according to the report, ultimately allowing banks to commit to returning $32.2 billion to shareholders — $18.7 billion through dividends and $13.5 billion through share buybacks.
PwC Australia’s Banking and Capital Markets Leader, Sam Garland, said 2021 has seen much of the uncertainty that plagued 2020 reversed in light of government support, economic improvement and national vaccination rates.
“The big movements in bank results over the past few years have been driven by large charges for notable items like regulatory remediation and business divestment and, in 2020 and 2021, credit,” Mr Garland said.
“Looking through all that reveals businesses that have delivered steady profitability, even as they have invested in strengthening their balance sheets, profoundly simplifying their businesses, supporting customers, transforming technology and addressing a large number of regulatory and reputational issues.”
Mr Garland said the PwC Major Banks Analysis for 2021 revealed that as Australia begins to open up its economy and its borders, big banks are emerging strong into an “environment of significant opportunity and profound change.”
Significant simplicity
PwC said the majority of the earnings rebound came from a $12 billion swing in credit costs and a reduction of more than $2.5 billion in notable items charges.
According to Mr Garland, these long-term trends show why banks have been investing in simplification and transformation over recent years.
“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,” he 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.”
In fact, some non-major banks grew lending faster in absolute terms than three of the majors in 2021, indicating the changing financials sector market.
With commitments to bolster spending on climate action and greater bargaining power for employees, PwC said banks now need to find the balance between ambition, rigour and speed.
Mr Garland said all major banks are busy working on adapting to the transformation of their sector to ensure they satisfy operational, regulatory, legal and commercial requirements.
“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.”
