Aussie banks not so profitable

Australian banks are not the most profitable in the world, or even the most profitable companies in the country, according to the Australian Bankers’ Association (ABA).

The solid financial performance of Australian banks continues to underpin the contribution banks make to the economy, providing more than 400,000 jobs.

In 2013/2014, the finance and insurance industry contributed almost $130 billion to the local economy, or nine per cent of GDP, according to the Australian Bureau of Statistics.

However, Steven Münchenberg, chief executive of the ABA, said in terms of how the banking industry compares to other Australian companies, of the 50 most profitable listed companies in Australia, none are banks.

“Some critics sometimes claim that Australian banks are the most profitable in the world,” Mr Münchenberg said. “This is untrue. Australia’s banks are certainly not ‘the most profitable in the world’,” he said.

“To understand where Australian banks sit, we need to compare our banks with a similar country.”

Canada, with a population about 50 per cent bigger than Australia’s, has six big banks, and is on par with Australia, with an average return on equity (ROE) of nearly 16 per cent.

“In China, for instance, the major banks have ROEs of over 20 per cent,” Mr Münchenberg said.

He added that many people would be surprised at the relatively low cost of banking services for Australian households.

“The proportion of household disposable income consumed in interest payments is currently 8.8 per cent, well below the September 2008 peak of 13.2 per cent and the lowest level in 10 years,” he said.

“Households paid $4.1 billion in bank fees in the year to June 2013.

“This might sound like a lot of money, but it is less than a half of one per cent of household spending.”

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