The royal banking commission released a paper on Friday that seems to suggest what its investigation will focus on.
The paper outlines the key players and the size and range of products of the banking industry, but also zooms in on the profits and return on equity of authorised deposit-taking institutions (ADIs) – particularly the major banks.
As important as the report’s content is the timing of its release.
The release a few days before the commission’s first hearing today signals that Commissioner Kenneth Hayne will likely focus his initial inquiry on major banks’ profits.
The report, titled Some Features of the Australian Banking Industry, notes that the major banks have generally achieved higher profit margins than other types of ADIs over the past 10 years. In the June 2017 quarter, they earned a profit margin of 36.4% and had a net profit after tax of $7.8bn.
Overall, ADIs returned a net profit after tax of around $9.2bn in the September 2017 quarter and a profit of $35.9bn in the 12 months to September 2017, says the report.
By ROE, the major banks have also generally achieved a higher return than other types of ADIs over the past 10 years, earning an ROE after tax of 13.6% in the June 2017 quarter.
Other domestic banks earned an ROE after tax of 10.4% in the same quarter, notes the report.
The report says that based on available information, the country's major banks are comparatively more profitable than some of their international peers.
“While precise international comparisons of Australian banks’ profits and returns on equity cannot be undertaken due to differences in financial reporting and accounting standards across jurisdictions, publicly available information broadly indicates Australia’s major banks are comparatively more profitable (as assessed by net income as a percentage of total assets) than some of their international peers in Canada, Sweden, Switzerland and the UK,” it says.
The commission has said that it will not hear or determine applications for leave to appear at its hearing today, and that it will not be taking evidence from witnesses.
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