Bank Results in a Nutshell
Stuart Jackson, Portfolio Manager for The Montgomery [Private] Fund and Senior Analyst whipped up the following summary of the Big Four bank’s 2017 results for a TV interview during which the host decided to chat about something else.
So here’s are Stuart’s thoughts – now exclusive to the insights blog!
- Revenue growth is becoming more difficult to achieve
- Consumer lending is slowing and business lending is not yet taking up the slack despite surveys suggesting business confidence high.
- Non-interest income is weak with fees growth remaining constrained.
- There is a significant focus on costs, but made challenging by the need to invest in technology. Of course, the investment is necessary to remain competitive longer-term.
- Bad debt charges currently remain very low. This is partially due to reversals of charges taken in previous periods, but underlying delinquencies and stress levels are fairly benign. Having said this, there is a ‘mix’ element with falling corporate stress, after the spike two years ago, offsetting some increases in household stress levels.
- The banks have almost achieved ARPA’s ‘unquestionably strong’ capital targets well ahead of schedule. However, a lot of the improvement is due to a reduction in risk weights resulting from falling stress levels in the corporate sector. If stress were to rise, this improvement would be partially unwound.
The Montgomery Funds own shares in Westpac and Commonwealth Bank