Morning Expresso – Australasia

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Morning Expresso – Australasia

Australian Banks Fortnightly - Money in the Bank: Issue #25

UBS Australian Bank Fortnightly: Money in the Bank Financial

As the end of the financial year rapidly approaches, we take a trip down bank metric memory lane.

Namely, this issue covers 1) How well do you know your Aussie bank history? We pull ~25 years of half-

yearly historical data to see how the banks have operationally performed over time and through

different highlighted economic backdrops, and 2) Our proprietary UBS Evidence Lab mortgage and

deposit pricing pulse check looks at both sides of the balance sheet, with mortgage competition

increasing.

A quarter century of Australian bank performance in five charts: Overleaf, we present five charts

showing the average of the majors Cash ROTE, Cost-to-income (CTI), Net interest margin (NIM),

Collective Provisions to GLAs, and the profit conversion from total revenue. We've overlayed rough

macro economic backdrops over this period and a few things stand out to us:

ROTE and NIM have been structurally compressing since the GFC (since 2000s for NIM), ROTE is now

5.8ppts below the long term average and NIM -40bps. However, it should be noted, post COVID

higher-for-longer rates have been a key support for ROTE at ~current levels.

Majors CTIs dipped post the mining boom in Australia, peaked again in COVID before dipping again,

and are now roughly in line with long term averages (our APAC Focus piece on bank productivity here).

Bank mgmt. teams have been vocal on tackling both sides of the CTI ratio, but we believe there are

more credible select cost out opportunities for banks, especially from AI investments.

Collective provisions to GLAs have shown the clearest signals of credit cycles over the past 25 years.