Australia's Big Four Banks are making money. In fact some banks are reporting record profits, leaving many to wonder if this is fair amid Australia's continued cost-of-living crisis.
In the back half of 2024, Commonwealth Bank (CBA) reported net profits after tax of more than $5.1 billion. For fiscal year 2024, ANZ has roughly $6.6 billion in profits after tax; National Australia Bank (NAB) made $7.1 billion. Westpac delivered a mixed bag of results Monday during the bank's half-year update, but still managed to walk away with more than $6.9 billion in profits during 2024's financial year.
Collectively, the Big Four banks amassed pre-tax profits of $44.6 billion in the last financial year. Approximately, $17.6 billion of those profits came from loans to owner-occupiers, signaling a significant slice of profits from residential mortgages.
While this is good news for lenders — and means competition is heating up in the mortgage market — it's also raising concerns about the Big Four banks earning power during a time of economic hardship for many Australians. Some critics argue that the banks' dominance allows them to maintain high-profit margins at the expense of consumers.
Kevin Doodney, founder and chairman of Future Housing Taskforce, a firm that works to develop and scale affordable housing in Australia, told news.com.au, that "the Big Four Australian banks make up four of the eight most profitable banks in the world. They are making that money from a population of just 27 million people. There’s 8 billion people out there, for Christ’s sake.
"My attitude is that, you know, for the first time in history, affordable housing is becoming a serious issue for any government, and you’ve got to look at who’s making the money out of that, between either the government themselves or the banking system," he said.
But Tasmania-based economist Saul Eslake said the size of the banks' earnings are relative, and that while many people believe the banks are making too much money, the truth is more nuanced.
"Yes, they make lots of money," Eslake told Australian Broker. "But they, more than a lot of other companies, pay the appropriate share of that over to the Australian people in the form of tax. And they also pay a lot of their profits after tax to ordinary Australians in the form of dividends, because Australian bank shares are widely held by individual share funded retirees. And they're also very widely held by the superannuation funds that almost every employee has a stake in.
"I understand why some people begrudge the banks seemingly making a lot of money," Eslake said. "For the regular person, the billions that the banks report in profits are a lot of money. But when set against the size of their assets as a percentage, or when you consider how much of those billions are returned to the federal government as a form of company tax and to ordinary shareholders, including through their superannuation funds in the former dividends, the Australian people do all right out of it.
"In some ways, it reflects what is sometimes called 'Tall Poppy Syndrome' in Australia," Eslake added. "Australians don't like to see other people doing well, unless it's in a sport. The speculation is that there are acceptable ways to make money. But people don't like to see banks and mining companies making lots of money. The reality is that, yes, Australian banks make profits that are in the billions, and sometimes lots of billions, but they are also very big organizations themselves, and the return on assets in particular is not particularly high in percentage terms."
ANZ and CBA declined to comment, while NAB and Westpac did not respond to requests for comment.
Still, regardless of individual perceptions, Australia's big banks have drawn considerable public scrutiny over their profits, especially at a time when so many Australians are facing financial hardships. According to research from the Australia Institute, an owner-occupier with a 30-year loan of $574,200 contributes roughly $200,800 purely to the bank’s profit over the life of the loan. That's equal to nearly 35% of the borrowed amount.
Brokers can use this as an opportunity to grow their businesses by strengthening client relationships and guiding borrowers through these complex emotional financial decisions. They can do this by helping borrowers understand all of their options, refinance when appropriate and stay on top of lender policy changes.
