The Australian financial system continues to perform well with the return on equity for each of the major banks exceeding 15%. Over the long term the major banks face a number of challenges including pressures on cost-to-income ratios and disrupting technologies that will impact banks across the value chain.
The recent Financial Systems Inquiry (FSI) emphasised the concern to the stability of Australian banks, particularly in the event of a GFC style correction. The FSI also highlighted the need for banks to focus on technology change and innovation. We believe that in this future environment banks will continue to concentrate on efficiency improvements and superior customer experience. They will also need to capitalise on the use of data and technology to create new business opportunities.
Challenges and trends facing the sector:
- Increasing market volatility leading to higher wholesale funding costs to Australian banks which are net importers of capital.
- Raising of bank capital levels resulting in higher costs to consumers.
- Disrupting technologies that will impact banks across the value chain and present both a threat and opportunity for the major banks.
- Pressures on cost-to-income ratios will continue to drive the need to implement efficiency improvements across support and back office functions and distribution channels in particular branch networks.
- Distribution strategies will continue on a multi-channel approach. The focus will be on achieving the right channel mix by actively migrating customers to self-service, digital channels and mobile apps for marketing, promotions, sales and service transactions.
- Improving the customer experience through the use of real time information from multiple channels and branch concierge interactions.