Nov 06, 2013
Sydney, November 4th 2013 - Australia's solid, healthy banks continue to help our economy to grow by supporting the financial decisions of households and businesses.
The Australian Bankers' Association (ABA) said banks have produced solid full-year results, with the sector continuing to make an important contribution to our economy.
Steven Münchenberg, Chief Executive of the ABA, said: "The sector is an important contributor to our country's economic activity and growth. In 2013 , the finance and insurance industry contributed around $142 billion to our economy - about 10.4% of GDP, according to ABS data. The finance and insurance industry is the second largest contributor - just behind mining."
Mr Münchenberg said: "The banking industry recognises that when people look only at the headline profit figures, there are some in the community that are concerned with their size. But these figures need to be seen in context against important profitability measures. For example, the banking industry's return on assets is around one percent."
The standard and accepted measure of profitability - return on equity (ROE) - has remained at 16%."
When we look at the profitability of the top 50 companies on the ASX - based on size - our major banks are only middle-ranking. The ROEs of our four major banks are placed between 14th and 27th on the list of the 50 largest companies. There are quite a number of companies ahead of them, many of them household names."
The contrast is even starker when you look at all the companies on the ASX. Of the 50 most profitable listed companies in Australia, none are banks. The bank with the highest ROE is ranked only 52nd on the list of Australia's most profitable companies."
"Banks are also major taxpayers - paying amongst the highest effective corporate tax rates, especially when compared with other major corporate groups. Tax paid by the banking industry increased by 16% or $1.7 billion to $12.1 billion this year. Tax paid is now at a record level."
There's also been further downward pressure on net interest margins - these remain at very low levels."
How do Australian banks' results rank internationally?
Another claim that we hear critics make is that Australian banks are the most profitable in the world. This is incorrect.
Mr Münchenberg said: "If we really want to find the world's most profitable banks, we need to look to countries such as China, Indonesia or Russia. In China, the major banks have ROEs of over 20%."
"Australia's banks fall well short of these levels of profitability, with the major banks having an average ROE of 16%. They are far from being 'the most profitable in the world'".
"But to really understand where our banks sit, we need to compare our banks with a similar country. The closest comparison we have is Canada because of our many similarities. Canada, with a population about 50% bigger than Australia's, has six big banks, with an average ROE of nearly 18%. So even when compared to Canada's banks, Australia doesn't lead the pack."
Where do banks' profits go and who benefits?
Banks have paid out a record $21.2 billion in dividends this year, up 8% or $1.5 billion.
The majority of dividends are paid to 'mum and dad' shareholders, to working Australians who are saving for retirement through superannuation and to retirees who are increasingly dependent on business profit growth. In the past five years, banks have paid out $88 billion in dividends.
The Federal Government continues to benefit from our stable banks as the tax paid by the sector was more than $12.1 billion this year and over the past five years tax paid totalled $47 billion. In addition, banks continue to pay the Federal Government for the use of the wholesale funding guarantee. Since the financial crisis, banks have paid $4.3 billion.
Banks also paid $23 billion in wages and salaries to all staff this year.
Finally, this year banks are investing around $6 - $7 billion back into their businesses so they can continue to deliver better products and services through new technological developments such as mobile banking and other convenient services for customers.
Re-disseminated by The Asian Banker