By
Following the release of banks’ half-year results over the past fortnight, The Australian Bankers’ Association (ABA) says lenders have reported ‘solid’ half year results, indicating that the nation’s ‘stable and reliable’ banking sector continues to approve loans to ‘support the…investment decisions which benefit households, businesses and the wider economy’.
ABA CEO, Steven Münchenberg, says Australia’s banking sector is an important contributor to the country’s economic growth.
“In 2012, the finance and insurance industry contributed $140 billion to our economy – that’s about 10% of GDP, according to data from the ABS. The finance and insurance industry is the second largest industry contributor to the Australian economy, only just behind mining.”
Münchenberg argues that banks are also major taxpayers – paying the highest effective corporate tax rate among major corporate groups.
“Tax paid by the banking industry increased by 11% or $1.1 billion to $11.3 billion over the past year. Banks’ ‘headline’ profits must be placed in context. That is, the banking industry’s return on assets remains at less than 1%.”
“Despite the banking sector making a significant economic contribution, there has been some criticism of banks’ profits,” notes Münchenberg.
“I sometimes hear critics say that because banks are so profitable, they should be subject to a new tax. Implicit in that criticism is the assumption that banks are making excessive profits, but there is no evidence to back this claim. The standard and accepted measure of profitability – return on equity (ROE) – has fallen since the global financial crisis (GFC). The major banks’ ROE has fallen by close to 4%.”
When looking at ROE in comparison to banks and other companies, Münchenberg argues that banks are in the ‘middle of the pack’.
“Banks are currently more profitable than some companies and less profitable than others.”
