Institutions will need to provide for this. The second reason why profitability is weak is, of course – and I won’t shy away from it – regulation. Regulatory standards were made far tighter in response to the financial crisis, setting the bar higher for banks.
This is perhaps an opportune moment to offer some observations about the recent change in mortgage interest rates on the part of the major, and some smaller, banks and in particular the question of whether the Reserve Bank should respond to it with a decline in the cash rate.