Decline in profitability of the sector in 2020, according to APRA

Profits in the banking sector fell sharply in 2020, the Australian Prudential Regulation Authority (APRA) said. The news arrives despite the continued housing and real estate boom, which has led to record growth in home loans, house prices and door-to-door auctions.

APRA produces two statistical documents, Quarterly Performance of Authorized Depository Institutions (ADI) and Quarterly Exposures on Properties of Authorized Depository Institutions, which aggregate the performance of the entire banking sector.

The most recent editions were released this week and show a significant drop in profits for the quarter and year ending December 2020. The NPAT rose to $ 21.9 billion, a third lower than ‘at the same time in 2019.

Obviously, these numbers are heavily affected by the COVID-19 pandemic, which began in early 2020 and triggered an economic downturn globally. This first period of the year recorded just $ 1.5 billion in profits, more than $ 5 billion less than the previous year.

Those numbers started to turn in the right direction as the worst of the pandemic abated and the real estate market began to recover. For the second quarter, through June 2020, $ 7 billion in profits were reported, although those fell to $ 3.6 billion for the third quarter.

The fourth quarter was the strongest part of the year, as it usually is, and December 2020 ended with almost $ 10 billion in profits at Australian banks.

APRA blamed the drop in profits on a drop in total revenue caused by the pandemic, without a concomitant drop in operating expenses.

“The ADI industry held up well in the December quarter, with high capital ratios and strong liquidity and funding positions,” they said in a statement. “The industry’s profitability improved during the quarter due to the reduction in bad and bad debt charges. Overall, loan and advance growth has been slow, although home loans have increased moderately, supported by homeowner loans.

“Despite a moderate increase in new loans at higher loan-to-assessment and debt-to-income ratios, available indicators do not suggest any significant easing in housing lending standards, as these measures remain broadly in line with historical averages.”

“Key measures of asset quality were stable thanks to a series of borrower support measures, but the outlook is uncertain as support measures change in the coming quarters.”

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