No super profits in banking, CBA chief argues
Ralph Norris, chief executive of Commonwealth Bank, rejected suggestions that banks were earning super profits in any segment of their business. The Australian published an interview with Norris today.His comments are a dig at National Australia Bank, management of which has suggested that very high profits are being earned by banks in Australia on home loans.The industry's return on assets, he said, was typically about one per cent. "But now it's a bit below one per cent, so it's hard to mount the argument that we're making super profits," Norris told the newspaper.Norris contested suggestions that returns on equity on home loans are in the order of 45 per cent (a point made by NAB's finance director, Mark Joiner, in an interview with The Australian last month).The relevant measure, Norris said, was not return on regulatory capital but rather return on economic capital. "It's very hard to sustain the argument that we're making super profits," he said."If that were the case, there would be new entrants that would compete the super profits away."But what has actually happened over the last 2 1/2 years is that new mortgage flows to the major banks have increased from 60 per cent to 90 per cent. That tends to indicate there are no super profits for competitors to target."