Australian Banks; the best in the world?
Australia’s leading banks are amongst the best in the world when it comes to ratings and returns to investors. For a relatively small nation with a population of just on 23 million,Australia’s major four banks rank amongst the most profitable in the world. This is the second year running that the influential Bank for International Settlements has ranked the banks so highly.
In sheer profit terms the numbers are impressive. The “Big 4’, as they are widely known in Australia, the Commonwealth Bank, Westpac, ANZ and NAB posted pre-tax profits equal to 1.19 per cent of their assets in 2011 which was the highest level of profitability among banks from 13 nations included in the annual survey of bank profits. In dollar terms profits hit AU$12 billion in the first half of the 2012 financial year. From the perspective of investors this is good news. Dividends have been increasingly consistently for the banks since the global liquidity crunch and now offer investors yields of around 7 percent; a remarkably high rate of return for a share investment. But what about consumers? Do bank customers reap the same benefits as investors on this bounty?
The answer is yes and no. Yes on the grounds that the banks are competitive and are prepared to do deals on for example their home loan products where some banks offer introductory home loans as low as 5.75% in some cases and regularly offer standard variable mortgages at around 6.0 percent for most borrowers.
No is the answer when it comes to business lending. Bank lending rates to business – particularly small business, have been high and hurdle rates to meet bank criteria have been particularly high ever since the global crisis. In recent months (as at midyear 2012) renewed concerns in the Euro Zone have made capital markets jittery.
Banks have played down the large headline figures, saying they face a squeeze from slower credit growth and the possibility of disruptions in capital markets arising from the Euro Zone. Recent reports have indicated that many global banks were still in the process of writing down assets, which could lead to more taxpayer funds injected into the sector. In the longer term, new capital rules could put pressure on banks to rein in their costs.
Bank customers do have choices. A glance across any bank comparison site will show a wide range of products available but you need to do some reading of the details. As a case in point bank fees can become an issue. Bank fees are a fact of life these days but with some research you can save on fees. For example some banks have implemented fee rebate schemes which, in effect may make transactions fees subject to an overall monthly free-transaction allowance. Typically, if $500 is held in a deposit account, fee rebates will be offered.
Home loan customers can arrange their banking so that they pay little or no transaction fees on their normal transaction account. The Commonwealth Bank for example, offers its home loan customer’s full rebates on certain transaction account fees in addition to the normal quota of free transactions offered on the account.
In some cases a customer can qualify for a ‘bundled’ or ‘package’ deal where they will negotiate deals on a range of products and services. For example you can open a bank account, apply for home loan, seek home and content insurance and get a discount and fee rebate for the bundled offer. In other cases a home loan borrower can switch across to another bank and gain the advantage of negotiating a lower interest rate as well as asking for bundled deals. It pays to do some homework.