Busting ABA myths on bank profitability

Ian Rogers
A blog posting yesterday by Steven Münchenberg, chief executive of the Australian Bankers Association, needs a response.

Headlined: "Myth busting - facts about banks' profitability", Münchenberg wrote that he sees the claim that "Australia's banks are the most profitable in the world" so often "that even I have started to believe it."

"But a quick look at the facts shows that, while our banks certainly do well when it comes to profitability, they are hardly the world leaders as is so often claimed."

But, there is, in fact, a lot of credence in the claim.

The 2012 annual report of the Bank for International Settlements found that banks in Australia were at the forefront of industry profitability on a global basis.

The 2013 BIS annual report put the pre-tax return on assets for banks in Australia, in 2012, at 1.18 per cent.

The BIS said that banks in Australia were the fifth most profitable in the world, but the most profitable if the banking industries of the four BRIC economies (Brazil, Russia, India and China) are overlooked.

Münchenberg, on the other hand, has compared returns on equity.

With an average ROE for banks of 16 per cent, Münchenberg said that "Australia's banks fall well short of these levels of profitability" when compared with China (ROE in excess of 20 per cent) and also Canada (returns of 18 per cent).