Major Banks Still Highly Leveraged

APRA has published their quarterly summary of bank performance. Looking at the key metrics of the four major banks, we see growth in home lending and driving total loans higher to $2.4 trillion. Net interest income from home lending rose to 61.9%, up from 59.3% the previous quarter, reflecting changes in mortgage discounts and repricing. 83.2% of all ADI home lending is held by the big four.

apra-adi-sepq16-shareHome lending now comprises 62.8% of all loans with the big four. But in cash terms, lending provisions are lower now than in 2010, despite significantly larger balances.

apra-adi-sepq16-mix-and-provThe ratio of bank share equity to total loans sits at just over 5%, showing again how leveraged the banks are. We also see that CET1 and Basel Capital, whilst higher now than in 2013, has fallen somewhat recently.

apra-adi-sepq16The new Liquidity Coverage reporting shows the big four well above the required 100%.

apra-adi-sepq16-lcrTerm deposits rose compared with on-call deposits, thanks to the LCR requirements making term deposits more attractive to the banks.

More generally, on a consolidated group basis, there were 153 ADIs operating in Australia as at 30 September 2016, compared to 156 at 30 June 2016 and 159 at 30 September 2015.

  • G&C Mutual Bank Limited changed its name from SGE Mutual Limited, with effect from 12 September 2016.
  • Latvian Australian Credit Co-operative Society Limited had its authority to carry on banking business in Australia, with effect from 22 September 2016.
  • MyLifeMyFinance Limited changed its name from Transcomm Credit Co-operative Limited, and changed its classification from ‘Credit union’ to ‘Other ADI’, with effect from 3 August 2016.
  • “Quay Credit Union Ltd had its authority to carry on banking business in Australia revoked, with effect from 12 September 2016.”
  • “Select Credit Union Limited had its authority to carry on banking business in Australia revoked, with effect from 7 July 2016.”
  • “Select Encompass Credit Union Ltd changed its name from Encompass Credit Union Limited, with effect from 13 July 2016.”
  • “Sutherland Credit Union Ltd had its authority to carry on banking business in Australia revoked, with effect from 12 July 2016.”
  • “The Bank of Nova Scotia was authorised to operate as a foreign branch bank in Australia, with effect from 25 August 2016.”

    Looking at financial performance, the net profit after tax for all ADIs was $27.7 billion for the year ending 30 September 2016. This is a decrease of $9.2 billion (25.0 per cent) on the year ending 30 September 2015.

The cost-to-income ratio for all ADIs was 48.3 per cent for the year ending 30 September 2016, compared to 49.0 per cent for the year ending 30 September 2015.

The return on equity for all ADIs was 9.9 per cent for the year ending 30 September 2016, compared to 14.1 per cent for the year ending 30 September 2015.

The total assets for all ADIs was $4.52 trillion at 30 September 2016. This is a decrease of $58.3 billion (1.3 per cent) on 30 September 2015.

The total gross loans and advances for all ADIs was $3.01 trillion as at 30 September 2016. This is an increase of $105.8 billion (3.6 per cent) on 30 September 2015.

The total capital ratio for all ADIs was 13.7 per cent at 30 September 2016, unchanged from 13.7 per cent on 30 September 2015.

The common equity tier 1 ratio for all ADIs was 9.9 per cent at 30 September 2016, a decrease from 10.1 per cent on 30 September 2015.

The risk-weighted assets (RWA) for all ADIs was $1.97 trillion at 30 September 2016, an increase of $110.1 billion (5.9 per cent) on 30 September 2015.

For all ADIs:

  • Impaired facilities were $15.2 billion as at 30 September 2016. This is an increase of $1.4 billion (10.4 per cent) on 30 September 2015. Past due items were $12.9 billion as at 30 September 2016. This is an increase of $1.2 billion (10.5 per cent) on 30 September 2015;
  • Impaired facilities and past due items as a proportion of gross loans and advances was 0.93 per cent at 30 September 2016, an increase from 0.88 per cent at 30 September 2015;
  • Specific provisions were $7.2 billion at 30 September 2016 (chart 8). This is an increase of $0.9 billion (14.2 per cent) on 30 September 2015; and
  • Specific provisions as a proportion of gross loans and advances was 0.24 per cent at 30 September 2016, an increase from 0.22 per cent at 30 September 2015.

 

 

 

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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