Global slowdown catches up with Australia’s banking sector

Australia’s banks may have avoided the global financial crisis, but new data reveals they couldn’t outrun the subsequent economic slowdown.

According to a report by global consulting group McKinsey, the average return on tangible equity (ROTE) of Australia’s banks last year fell to 12.9 per cent – well below the 19.5 per cent they enjoyed on average during the five years to 2007.

McKinsey described the run-up to 2007 as an “unsustainable expansion” and said the lower returns were the “new reality”.

Sam Wylie, principal fellow at the Melbourne Business School, said the fall in banks’ ROTE was largely caused by APRA requiring them to hold more capital, after the Financial Systems Inquiry report in 2014 recommended Australian banks be “unquestionably strong”.

Read more: https://thenewdaily.com.au/money/finance-news/2019/10/22/australia-banks-mckinsey/