How our big four bank profits compare against overseas banks

MALCOLM Turnbull says Australia’s big four banks are among the most profitable in the world. As a row continues over their $6.2b levy, this is how they stack up.

PRIME Minister Malcolm Turnbull says Australia’s big banks are among the most profitable in the world, but how do they really stack up?

Very nicely, thank you, compared to many other banks globally, according to the financial experts who monitor these companies’ profits and growth.

To compare profitability, analysts use a common ratio called return on equity (ROE), which measures how much profit a company generates on each dollar of shareholders’ investments.

KPMG data shows that Australian banks’ ROE last year was about 14 per cent, which put us slightly behind Canada but way ahead of most other major economies.

MORE: Budget company tax cut blowout revealed

RELATED: The Budget 5-minute guide

The Prime Minister Malcolm Turnbull has warned the banks not to lie to Australians. Picture: Gary Ramage

A broader ROE comparison from research group Morningstar shows that Aussie banks’ 14 per cent ROE last financial year dwarfed the profitability of banks in Europe (4.7%) and Britain (1.7%), and was higher than the US, Singapore, China, Hong Kong and Switzerland.

In terms of sheer size, Aussie banks also punch above their weight. While our share market is only about 2 per cent of the world’s global share market value, we have two banks in the top 20 — and four in the top 26.

The Commonwealth Bank is the world’s 10th biggest bank and one of its most profitable.

The Commonwealth Bank is the 10th largest bank in the world and Westpac ranks 16th in a list dominated by eight US and Chinese banks in the top 10.

Aussies — and especially the current Federal Government — love to bash the big four, but our banks are doing OK in terms of customer experience. Separate KMPG research last year found that Australian banks were slightly below British banks for customer experience, but well ahead of US and Irish banks.

Morningstar senior analyst David Ellis said strong banks were vital for a strong economy.

“That’s one of the reasons why the Australian economy didn’t collapse into recession during the Global Financial Crisis,” he said.

Treasurer Scott Morrison has told the banks not to pass the levy on to their customers. Picture: AAP

“The four major banks control about 80 per cent of the financial system and we need these banks to be strong to support economic activity and growth. It’s ludicrous to think any differently.

“In Europe and the UK their banking systems collapsed in the GFC and received billions of dollars of government bailout money.”

Aussie banks have warned they will have to pass at least part of the cost of the government’s planned new $6.2 billion tax on the big banks to customers, which may give smaller banks and other lenders a competitive advantage.

The chief executives of ANZ, Commonwealth Bank, National Australia Bank and Westpac have all said the cost will be passed on - with shareholders, customers and staff in the firing line.

Switching to another bank or credit union is easier than ever before, with many willing to help with account switching and offering sharp discounts to grab extra business.

BANKS’ PROFITABILITY — RETURN ON EQUITY

Canada 14.6%

Australia 14%

China 13.5%

Singapore 9.8%

USA 9.5%

Hong Kong 8.7%

Europe 4.7%

Switzerland 3.9%

Britain 1.7%

Source: Morningstar

Originally published as How our big four bank profits compare against overseas banks