Are Australia’s banks finally starting to crack?
It would appear so…
Last Wednesday, National Australia Bank Ltd [ASX:NAB] was the last of the Big Four to report earnings for the year.
And like its peers, it wasn’t great reading.
Cash earnings were down 10.6% and net profit down 13.6%. Which meant a cut in the dividend paid out to shareholders too.
ANZ, Commonwealth Bank, and Westpac all announced similar results.
The banks’ dream run seems to be coming to an end…
A slow-motion car crash
Regular readers will know I’ve been banging on about this for most of the year.
It’s part of a huge bank unbundling that’s happening before your eyes. And yet very few people accept it to be true.
But now it seems the big end of town is starting to see the writing on the wall.
KPMG noted in a recent report:
‘There is a continued trend of re-allocating investment spend towards compliance, regulatory and customer remediation costs, forcing investment and resources away from enhancing technology and digitalisation priorities.’
This is a point I’ve made time and time again. How the sins of the past are making it hard for the big banks to adapt for the future.
Which will cause further dents into bank profits in the years ahead.
The future of banking is full of huge changes that will punish any unprepared banks.
As a recent Ernst Young report stated:
‘With the rapidly approaching introduction of open banking, the next few years will usher in changes that will fundamentally shift the Australian financial services landscape.’
You only have to follow the Deutsche Bank (DB) story (as we have here in Money Morning) in Germany to see how decades of mismanagement eventually catches up.
They’re still dealing with scandals from many years ago, and it’s had catastrophic consequences for shareholders.
DB is a cautionary tale for banks everywhere.
The problem for the Big Four in Australia is that they’ve had it too easy for too long. And easy money breeds lazy management.
We (the customer) are partly to blame. We’re notoriously lazy ourselves when it comes to shopping around for the best banking deal.
Check out this statistic for example:
Source: NAB via Peter Morgan
This graphic shows customer deposits held with NAB by interest rate earned.
Amazingly, around $88 billion — or the total value of NAB — is held in accounts earning near zero interest!
(I’d suggest you check out the interest rates on your savings accounts today if you haven’t already.)
Lazy money, earning lazy banks’ lazy profits.
But the days of such easy money are fast coming to an end.
Even lazy customers will be able to change banks soon.
A new breed of fintech banks are aiming to make it as easy as possible to make the switch.
The Volt Bank CEO told the fintech summit in Sydney last month this was a key feature. As reported in finder.com:
‘Weston also confirmed that customers will be able to import transactions from their existing bank into Volt.
‘“Most of us will not switch banks at any time in our lives because we’ve got payment records set up and it’s just a pain, so we just stick with what we have,” he said.
‘When they open an account, customers will be able to import their payment records to see their transaction history and balances across all of their accounts.
‘“So just overcoming one of those key inertia points that stop it switching today,” he said.’
Apparently, Volt have 36,000 customers on their waitlist already. It’ll be very interesting to see how that number grows over 2020.
Weston also said Volt are working on a feature to allow customers to see the interest rates being paid on savings and charged on loans.
While that doesn’t sound that amazing, it’s something that will have the big banks quaking in fear.
‘I would hazard a guess that it will take the major banks a very long time to give their customers that level of transparency, not because they can’t do it, […] but the facts are that their interest rates generally aren’t competitive.’
Which brings me back to the horror show in store for the big banks…
No one gets out of here alive
The recent earnings falls are just the beginning…
The big banks in Australia about to be squeezed from all directions.
From tech companies, from fintech companies, from specialist niche providers, from international raiders…
They’re coming after savings accounts, loans, insurance…even travel money!
And the show stopper?
The big banks aren’t competitive in ANY of it.
I don’t like their chances…
Editor, Money Morning
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