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Bank profits fell by over a third in 2020

Despite a surging mortgage market, bank profits dropped by over a third in the calendar year 2020, new APRA stats show.

The Australian Prudential Regulation Authority (APRA) has released the Quarterly Authorised Deposit-taking Institution (ADI) Performance and the Quarterly Authorised Deposit-taking Institution Property Exposures publications for the period ending December 2020.

According to the data, the banking sector’s collective net profit after tax totalled $21.9 billion in the year ending December 2020, down a massive 35 per cent on the year ending December 2019.

The APRA figures show that the banking sector suffered greatly in the first quarter of the calendar year (following Christmas and the beginning of the COVID-19 period), returning a net profit after tax of just $1.5 billion. In the same period the year prior, the banking sector returned a profit of $6.8 billion.

However, profits picked up to $7 billion in the June 2020 period, before dropping again to $3.6 billion in the September quarter.

In the final quarter of the year, which is typically one of the most profitable for the sector – the banks saw a net profit of $9.7 billion, bringing the total for the year ending December 2020 to $21.9 billion.

The APRA stats show that total assets grew over the year, with banks now holding total assets worth more than $5 trillion for the first time. As at December 2020, banks held $5.3 trillion in total assets, up 6.4 per cent on the previous year.

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Despite this, profits were hit after total operating income, return on assets after tax and return on equity after tax all dropped on the previous year, while operating expenses increased to $58 billion.

Total impaired facilities also rose over the year, rising from $12.9 billion in the year ending December 2019 to $14.6 billion in the year ending December 2020.

APRA found that impaired assets and past due items rose 17.1 per cent in the year, from $31.0 billion as at December 2019 to $36.4 billion as at December 2020. However, the prudential regulator noted that repayment deferrals “may have dulled the anticipated deterioration in asset quality”.

December quarter figures

Looking at the banking sector’s loans for the final three months of the year, the total amount of owner-occupied credit outstanding in the December 2020 quarter totalled $1.17 trillion, up 6.9 per cent on the December 2019 period.

Investment lending credit outstanding was down 1 per cent on December 2019 quarter figures, to $609.6 billion.

Non-performing term loans held by the banks were up 19.2 per cent to $18.8 billion, while interest-only loans dropped 10.4 per cent.

In terms of new loans funded over the period, owner-occupier loans increased by 23.6 per cent on the December 2019 quarter, at just under $89 billion.

New investment loans funded were also up on the previous period, rising 13.7 per cent to $36.4 billion.

The value of new interest-only loans funded also increased markedly on the previous year, growing from $18.7 billion in December 2019 quarter to $24.6 billion in the December 2020 quarter.

Third-party originated loans were up a whopping 28 per cent on December 2020 quarter, writing $69.5 billion of new loans in the quarter, up from $54.3 billion the same period the year prior.

APRA noted: “The ADI industry was resilient in the December quarter, with high capital ratios and strong liquidity and funding positions. Industry profitability improved over the quarter due to reduced charges for bad or doubtful debts. Overall, growth in loans and advances was slow, although housing lending grew moderately, supported by lending to owner-occupiers. 

“Despite moderately increased new lending at higher loan-to-valuation ratios and debt-to-income ratios, available indicators do not suggest any material relaxation in housing lending standards, with these metrics remaining broadly in line with historical averages. Key measures of asset quality were stable thanks to a range of measures providing support to borrowers, but the outlook is uncertain as support measures change over coming quarters.”

[Related: Bank profits sink despite home lending surge]

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