The cost impact of structural and other changes made by the major banks as a result of the findings of the Hayne royal commission has been estimated at an average increase in operating costs of 2.4 per cent a year between 2018/19 and 2021/22.
Macquarie Securities has made this estimate based on remediation costs, divestments and acquisitions that can be linked to the fallout from the royal commission. Over the same period revenue increased by an average of 0.5 per cent a year.
As an example, 2.4 per cent of Commonwealth Bank 2021/22 operating expenses, which were $11.6 billion is around $280 million.
Macquarie has undertaken this work to try and get a feel for how inquiries into the supermarket sector by the ACCC, the Senate Select Committee on Supermarket Prices, Treasury and the Queensland and South Australian governments might impact that sector.
Hayne’s main findings included problems with sales-driven commission structures for financial advice, poor risk management, inadequate customer remediation in the event of breaches and improper fee practices. In essence, institutions failed to put the customers’ interests first and prioritised sales-based revenue.
Macquarie said: “In addition to higher operating expenses through the P&L, the banks also saw a significant step-up in capex as investment in systems increased. We attribute some of this increased system spend to the higher regulatory burden following the royal commission.
ANZ’s capex rose from less than $1 billion to more than $2 billion a year over the period under review. The only one of the four banks to hold its capex level fairly steady was NAB, at around $1.5 billion a year.
“There is a risk that the series of supermarket inquiries uncovers breaches that are deemed systemic in nature, which in turn could cause a step-up in compliance costs across the supermarket sector in coming periods.”