Investors are now feeling the brunt of the financial services royal commission, lower interest rates and new lending standards that have combined to hurt the banks’ bottom lines.
Westpac and NAB have announced their investors will receive 15 per cent and 16 per cent less in dividends returns, respectively, while ANZ shareholders look set to lose 10 per cent on previous returns.
For EY Oceania’s banking and capital markets leader, Tim Dring, “declining profits and margins have seen the banks cut dividends and preserve capital, as they batten down the hatches and brace for further challenging conditions ahead”.
While running on a different reporting schedule to the other banks, investors of the Commonwealth Bank would also be bracing for their own dividends reduction in February.
Are they ‘safe as a bank’?
While the big four banks remain strong from a financial point of view, they are facing a raft of upcoming headwinds such as open banking, increased competition, economic conditions and the prospect of rebuilding trust.
“For now, asset quality remains strong but benign credit conditions will not continue indefinitely, and, when the credit cycle turns, that will squeeze the banks’ future profits even further,” Mr Dring stated.
According to EY, “there is a seismic shift occurring in consumer preferences, economic trends and regulatory environment”.
“Coupled with increasing pressure from new non-traditional players, like neobanks, payment service providers and technology companies, these changes mean that banks will have to make some tough choices in order to remain relevant and rebuild trust,” Mr Dring elaborated.
EY indicated that “banks should be considering a shift to more transparent strategies that focus on promoting customers’ financial wellbeing and moving away from product-centric selling models towards ones that offer more customer-centric, personalised subscription-based services”.
