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Highlights
- Premier banking institutions have reported remarkable earnings during the financial year 2021 gaining strong momentum for 2022.
- Owing to the increased awareness about these concerns, the financial sector is in for a period of enhanced scrutiny and tightening regulation.
The banking sector has constantly stood the test of time and has proven its resilience through various adversities. The pandemic tested the strength of the Australian banking sector, only for the industry to push forward unhindered. Banks had a stable run in 2021 and is heading towards a new year. After witnessing the sector’s phenomenal ability to withstand changing headwinds, it is worthwhile to shed light on how the sector could fare in 2022.
One of the many byproducts of an economy that functioned remotely was the rapidly booming digitisation across various spaces. The banking sector was also revamped with a number of internet-friendly services that consumers availed while sitting from home. A testament to this was the emergence of the buy now, pay later (BNPL) segment within the financial sector, which allows interest free installments on discretionary products.
Thus, growing digitisation across banking has opened doors for further opportunities that can be capitalised upon. In this new environment, here are some ideological shifts that the banking sector can brace itself for in 2022.
Powering through the new year
The ongoing economic recovery is expected to stretch well into the coming year and uplift the overall revenue in the banking sector. The earnings forecasts for major banking institutions in the country remain strong, with a positive outlook shaping up for asset quality.
The premier banking institutions, Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac have reported a combined operating profit of AU$38.9 billion for the financial year 2021. This marked a massive uptick of 54% over the entire previous year.
The massive recovery in earnings resulted from reduced impairment charges. Additionally, pre-impairment profit showed significant increase, further adding momentum to the sector’s performance in 2022.
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Key changes in the payment system
“With great power, comes great responsibility” is a phrase that may never become overused. The immense power held in the digital arena to uplift the financial space comes with the added task of providing financial security that underpins these digital operations. Many financial services offered digitally have been flagged by authorities as being risky ventures for the public.
Owing to the increased awareness about these concerns, the financial sector is in for a period of enhanced scrutiny and tightening regulation. Regulatory pressures have been building up in Australia since very long, forcing the government to announce significant changes to make payment framework future-proof. A payments forum is expected to be established in early 2022 to decide on the required regulatory actions.
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Bottom Line
Some slowdown is expected to seep into the sector as asset quality remains susceptible in the coming periods. While lockdowns might cause a temporary slack in earnings, they are less likely to leave behind a long-term impact. Limited funding and fears of interest rate hike in the coming year remain some challenges for the sector. However, the sector remains well positioned to bolster through the next year.
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