Westpac the world's most profitable bank

The most profitable bank in the world may be Westpac.

Or at least the most profitable "universal bank".

With a return on equity in the year to September 2008 of 20.4 per cent, Westpac leads a bank profit ranking published yesterday by Boston Consulting Group in an annual survey. The ranking features "universal banks" and excludes more specialist institutions with higher returns.

Westpac's ROE exceeds the country average for Australia, of 16.5 per cent, by a quarter. The data used in the survey will precede the bank's takeover of St George, and the most recengt evidence of rising margins offset by a rise in impaired loans.

The BCG ranking is a little unfair on Hang Seng Bank (which operates in south China), which reported an ROE of 23 per cent, but which the consultants preferred to rank in a second table of the most profitable niche banking entities.

The study is a reminder that profitable banks remain even in countries with distressed banking sectors.

Other "most profitable" banks for their own markets (but not so profitable as Westpac) are BBVA, Royal Bank of Canada, Standard Chartered, Mediobanca, Sumitomo Mitsubishi Financial Group and even, in the United States, Northern Trust.

Among specialist entities the tiny China Merchants Bank topped the table with an ROE of 33 per cent. With a mere 500 branches CMB is a flea in China's banking industry. Two hundred thousand branches is what's required for reach in that market.

The data is a little dated and that shows in some ways. For example, Macquarie Group made BCG's list of profitable niche banks, something true on the basis of March 2008 full year financials but now overtaken by write downs on many investments.

Leaving this point aside, the return on equity across the banking sector fell to 6.5 per cent in 2008 down from 14.2 per cent in 2007 and 17.8 per cent in 2006.

BCG estimated the cost of equity rose to 14.7 per cent last year from a low of less than 11 per cent in 2005 and 2006.

Boston Consulting Group published the Value Creation in Banking survey yesterday.