The latest quarterly ADI performance statistics from APRA reveal a significant fall in the return on equity for all Australian banks over the year to 30 September.
According to the APRA report, released yesterday, return on equity (ROE) for all Australian banks fell from 14.1 per cent in 2015 to 9.9 per cent this year.
The net profit after tax for all ADIs was $27.7 billion for the year ending 30 September 2016, a decrease of $9.2 billion (25 per cent) on the year ending 30 September 2015.
The JP Morgan Australian Mortgage Industry Report (Vol.23) noted that ROE for bank mortgage books has fallen from 40 per cent to 25 per cent since 2008.
JP Morgan banking analyst Scott Manning said the change in the banking landscape since 2007 “is not to be underestimated”.
“Regulatory capital requirements since 2007 have tripled, while profit has ‘only’ doubled,” he said.
The “more worrying trend” is that non-mortgage ROEs are currently around the cost of capital, making mortgages the primary capital generator of the major banks.
“[Mortgages are] effectively funding the growth across the entire business and thereby a key contributor to dividend affordability,” Mr Manning said.
APRA figures show all ADI impaired facilities were $15.2 billion as at 30 September 2016, up 10.4 per cent on the prior corresponding period. Past due items were $12.9 billion, also up 10.5 per cent on 30 September 2015.
APRA’s quarterly ADI property exposures report shows a 7.9 per cent increase in residential mortgages provided by Australian banks to households over the year to 30 September.
Of these, owner-occupied loans were $949.0 billion (64.9 per cent), an increase of $108.6 billion (12.9 per cent) from 30 September 2015. Investor loans were $512.3 billion (35.1 per cent), a decrease of $2.0 billion (0.4 per cent) from 30 September 2015.
However, ADIs only approved $372.1 billion of new loans over the year, an increase of 1.6 per cent.
Of these, owner-occupied loan approvals were $250.3 billion (67.3 per cent), an increase of $29.9 billion (13.6 per cent) from the year ending 30 September 2015.
Investment loan approvals were $121.8 billion (32.7 per cent), a decrease of $24.2 billion (16.6 per cent) from the year ending 30 September 2015
Interest-only loans accounted for $135.2 billion (36.3 per cent), a decrease of $23.9 billion (15.0 per cent) from the year ending 30 September 2015.