SYDNEY, AAP – Australia’s major banks have delivered a turnaround in earnings but will continue to face subdued revenue growth amid low interest rates and intense competition in the mortgage market, according to consulting firm Ernst & Young.

The Big Four banks have reported aggregate cash earnings of $26.8 billion for fiscal 2021, a 55 per cent improvement over the pandemic-hit previous year.

On Tuesday, National Australia Bank posted a nearly 80 per cent rise in full-year earnings, joining its peers Commonwealth Bank, Westpac and ANZ who also posted a similar rebound.

This has largely been underpinned by strong housing market activity, the release of pandemic-driven provisions, and fewer notable expenses, EY says.

However, revenues and profitability remain under pressure as the net interest margins decline and the benefit of the Reserve Bank’s cheap term funding facility fades away.

Repayment deferrals remain significantly lower than they were at the height of the COVID-19 crisis in mid-2020, EY’s banking and capital markets leader for Oceania region, Tim Dring said.

However, “the banks will need to keep a close eye on this in the coming months, with the recent lockdowns in Victoria and New South Wales likely to have put increased pressure on borrowers who were already facing repayment difficulty,” he added.

Strong borrower demand and low interest rates have driven robust housing credit growth over the last year. However, competition in this space has intensified.

ANZ alluded to this late last month when it reported an underperformance in its home loans business, saying it was unable to handle frenetic demand in the segment during the second half of its financial year and was forced to hire hundreds of additional staff to address the problems.

Rising staff costs have also been a worry at second biggest lender Westpac, which reported full year earnings last week.

“Ongoing investment in digital transformation, risk and compliance initiatives and higher processing volumes have kept the pressure on expenses,” Mr Dring said.

“Additionally, customer remediation of historical wealth and anti-money laundering issues also continued to impact costs for some of the banks this period.”

He predicts banks will need to become more agile and innovative by adopting a digital-first approach and leveraging on technology to both reduce their cost to serve and to deliver a more personalised experience for their customers.