Underlying profits building for banks

While six months out of date, the APRA quarterly data on bank performance provides a stocktake on sector performance and is the only source of aggregate industry data.

In the March 2009 quarter the sector return on equity was 11.9 per cent, and down from 17 per cent earlier in 2008.

Return on assets for the banking industry was 0.7 per cent, down from 0.9 per cent a year earlier.

The APRA measure of profit margin - or net profit divided by total operating income - was 24.2 per cent. This was better than in the two preceding quarters but still below the level of 28 per cent from a year before.

The charge for bad and doubtful debts was $4.3 billion in the March 2009 quarter, down from $6.1 billion in the December 2008 quarter but still the second highest since things sourced more than two years ago.

Over the year to March 2009 the charge for bad debts was $15.5 billion, up from $4.7 billion over the year to March 2008.

Aggregate net profit for banks is recovering from the margin squeeze of early 2008, which dragged down sector profits more than bad debts.

APRA reported net profit for banks of $5.3 billion in the March 2009 quarter, up from $4.7 billion in the December 2008 quarter and $3.3 billion in the September 2008 quarter.

The measure that may matter most is underlying profit. Compiled from the APRA data one version of this is the pre-tax, pre-goodwill amortisation profit, with the charge for bad debts added back.

In the March 2009 quarter this was $11.5 billion, up from $11.1 billion in the December 2008 quarter and a low, for this banking cycle, of $6.7 billion in the September 2008 quarter.

Given the repair of interest margins that is under way, the underlying profits of the banking industry in Australia remain on a rising trend.