The Big 4 banks have received a lot of attention over the past couple of years.
While Australia's largest banks have always been popular investments, their strong performance over the past few years has cast them in the spotlight.
In particular, the valuation of Commonwealth Bank of Australia (ASX: CBA) is widely covered. Its rapid share price rise has lifted its price-to-earnings (PE) ratio above 30, making it widely perceived as the most expensive banking stock in the world.
However, future initiatives and competition dynamics in the banking space receive less attention. These factors will drive profit growth and, therefore, returns from here.
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Macquarie Banking Symposium
Investment bank Macquarie Group Ltd (ASX: MQG) hosted its 2025 Macquarie Banking Symposium on 26 July.
That event considered critical themes shaping the future of banking.
Following the event, the broker released a research note titled '2025 Banking Symposium – reap what you sow', which summarised three themes discussed.
Business lending
Business lending was the first theme covered.
National Australia Bank (ASX: NAB) is considered Australia's largest business bank.
According to Macquarie, compression in lending spreads continues to pressure margins.
The broker also noted that relying on manual processing inhibits efficiency for some banks. However, some banks are actively trying to change this by increasing investments to streamline their processes.
Macquarie also noted that competition from non-banks and private credit has prompted traditional banks to reassess restrictive credit policies. This has loosened standards. While these changes could accelerate volume growth and possibly improve margins, there is a higher risk of impairment.
Consumer banking
Consumer banking was the second theme discussed.
CBA leads the Big 4 banks as Australia's largest consumer bank.
Macquarie noted that the mortgage market remains highly competitive. According to the broker, owner-occupier lending discounts have declined while lending for investment properties has gained momentum.
Macquarie said consolidation amongst mortgage brokers and the rise of challenger lenders may intensify competition in the medium term. This could place pressure on margins.
Technology and AI
Technology and AI were the third theme discussed.
Advances in technology and artificial intelligence have impacted several industries.
Banking might not be the first sector that comes to mind when investors consider the potential impact of AI. However, there are developments that investors should become aware of.
Macquarie acknowledged that banks have historically struggled to modernise their core systems due to a lack of prioritisation, focus, and leadership.
Transitioning to new technology remains complex and costly. However, advantages may include improved security, reduced cost of change, and faster product development.
Macquarie believes banks can leverage AI to reduce costs and improve profit margins. However, this will require upfront investments, substantial system improvements, and sound execution. Success is also dependent on the quality of available data.
So far, of the Big 4 banks, CBA has shown the greatest initiative in using AI to improve efficiency.
In June, it was reported that CommBank has completed migrating its data platform to Amazon Web Services (AWS).
According to CBA, "the scalable data platform will integrate with other channels across the bank to help drive faster, more personalised and innovative customer and employee experiences using the latest data, AI and analytics technologies."
