roe_table_201011
The return on equity offered by Australia's Big Four banks is in line with the returns of Australia's major airlines, retailers and power providers, new figures suggest.
The figures were provided to Banking Day by Access Economics director Professor Ian Harper, an architect of the 1997 Wallis Inquiry into the financial system and one of Australia's best-known finance economists.
The figures show that, measured by return on equity over the period 2000-2010, the Big Four rank third, fifth, seventh and eighth amongst 11 selected large Australian retail and service businesses. Woolworths ranked first, with an average annual return of 30.4 per cent over the period.
The highest-ranked bank, Westpac, had an average return of 20 per cent; the lowest, NAB, recorded 15.1 per cent.
Given the controversy over the banking industry, Professor Harper asked: "Why isn't there an outcry over Woolworths?"
Returns on equity are potentially important in the banking reform debate. Many analysts argue that if the major banks have inappropriate power to raise their prices, this will show up in return on equity over time.
However, it is not clear what level of returns would signal healthy competition. Some analysts suggest it could be as low as 12 or 13 per cent. That would suggest that most of the companies on the Access list have some degree of pricing power.