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Rate cuts, Hayne sap $2.3bn from Big Four

Alex Druce
The nation's 'big four' took a combined $2.27 billion hit to full-year profit in FY19

A combined $2.27 billion profit hit has finally given investors a firm idea of the cost to the big four banks of their past misdeeds and the broader shift to a low-interest rate environment.

Thursday's news of a 10.6 per cent drop in full-year profit at National Australia Bank means total annual profit across NAB, ANZ, Westpac and Commonwealth Bank fell by 7.8 per cent as the quartet set aside millions to compensate customers over the sort of issues aired at last year's royal commission and restructure in expectation of a low-growth future.

NAB, like Westpac on Monday, cut its final dividend, while ANZ last week reduced its franking level for the first time in 20 years as margins shrunk with a record low cash rate and the messy aftermath of the Hayne royal commission.

Attention will now turn to Commonwealth Bank, which reported in August and runs to a different financial calendar, when it announces its half-year result and interim dividend in February.

Accounting firm KPMG sad Thursday the four banks' combined cash profit came in at $26.9 billion, compared to $29.17 billion a year ago as huge remediation costs, record low interest rates, and a soft economy took a heavy toll.

Combined operating income fell by 3.7 per cent to $81.3 billion, with KPMG noting firms were forced to prioritise refunds and new regulatory safeguards over investment in technology and digitisation necessary to compete with new non-bank and international arrivals on the scene.

"A turning point for the majors was the overall decrease in total operating income, driven by strong competition, particularly in mortgages," KPMG head of banking Ian Pollari said.

"Management will face (a) careful balancing act of fixing problems and re-building trust with customers, at the same time as creating capacity to invest in digital and technological capabilities in a low growth cycle."

Deloitte said it was keen to see which of the big four would cross the 'perception' finish line first as consumers and regulators demanded more from lenders on non-financial risks.

"These community changes are the focus of the changing competitive dynamics, where foreign banks, non-traditional players, and the regulators identify where customers are having difficulties," Deloitte banking, treasury and capital markets partner Steven Cunico said.

"And to the customer's benefit, they are finding new ways of easing the pain and shifting the control back to the customer."

The big four's total operating expenses for the FY19 year increased 0.8 per cent to $39.4 billion as the total refund and remediation bill since 2017 expanded to $6.8 billion so far.

The majors' return on equity has now halved over the past 15 years, with net interest margins, lower growth and fee reductions squeezing ROE closer to the cost of equity.

"The good news is that this is not just beginning," Mr Cunico said.

"The transformation work has been going on in some instances for at least four years."