Australia's big four banks made a combined $31.5 billion in 2017

Photo: William West/AFP/Getty Images

The big four banks — Commonwealth, ANZ, NAB and Westpac — between them posted a combined $31.5 billion in cash earnings for 2017, a rise of 6.3% or $1.9 billion.

Return on equity increased by an average of 15 basis points to 13.93% and bad debt expenses fell by 22.5% to $3.97 billion.

However, analysis by EY shows average net interest margins down by an average of 4.5 basis points to 2.01%.

The results demonstrate the difficulty of generating sustainable returns in a lower growth, high competition environment, says EY.

Uncertainty about the future growth prospects and the possibility of higher housing risk weights are also adding to the subdued outlook for returns.

“The banks have shown they can maintain profits against a challenging backdrop. However, they must now show they can successfully execute on the digital, customer and regulatory compliance agendas to deliver long-term performance,” says Tim Dring, EY Oceania Banking and Capital Markets Leader.

“As they continue to reshape their businesses, the banks will need to focus on implementing strategies for sustainable and profitable growth, with a priority on embedding the right customer experience fundamentals.

“At the same time, banks need to optimise their balance sheets by using technology to improve services and reduce cost, manage risk and regulatory compliance, and rebuild trust.

“This will require a delicate balance between the competing demands of growing the business while keeping the bank, and customers, safe.”

Westpac was today the last of the four to report full year earnings, posting $8.06 billion in cash earnings. The ANZ had reported $6.94 billion, Commonwealth $9.88 billion and NAB $6.64 billion.

Full year earnings:

Source: EY

Dring says the banks are optimising their portfolios to reduce margin compression but profitability pressures remain.

“In this environment, there is a relentless focus on expense management,” he says.

“Tightening of cost bases remains a high priority as the banks focus on core business areas and removing complexity and duplication.

“Cost to income ratios improved for most of the banks as they work hard to balance the need to invest in innovation and growth programs with managing the cost of change and deployment.”

ANZ, NAB and Westpac’s full year reporting covers the 12 months to September. CBA’s full year is to the end of June.

Here are the results in detail:

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.