Saturday, 17 December 2011 00:14

Show leadership and stop “Bank Bashing”

It is truly disturbing to read daily political statements from our leaders on all sides of politics bashing banks for the sake of political gain.  Even the unions have joined this lunacy recently, but then again, none of these players are necessarily known for their intellectual athleticism.

Michael Chaney, one of Australia’s most respected businessmen has said that our leaders should educate people about the banking system, rather than use it for political mileage.  We agree.

Our political leaders would have you believe that banks are gouging borrowers by not passing on interest rate cuts.  The easiest way to determine if this was the case is to examine the banks net interest margins.  The net interest margin is simply the difference between what the banks pay to obtain funding and the rate charged to customers.

Below is a chart showing the net interest margin of the major and regional banks over the past decade.

This chart shows that margins now are significantly lower than they were 10 years ago and that the major bank margins have only been restored to levels seen before the Global Financial Crisis.  There is no evidence to be seen here of bank gouging.

Yes, bank profits in absolute terms are larger than they were before, but so are their businesses.  Just imagine how absurd it would be to criticise a builder for making more money because he built 10 houses a year, rather than 6.

Let’s also consider some of the benefits of a strong banking system to the community which include:

Finally, the table below, sourced prior to the GFC shows the profitability of Australia’s banks compared to other Western countries.


Australia has not experienced a bank failure in the modern era (banking collapse defined as an event where ordinary depositors lose their money).  Therefore we need to look overseas at how things can go terribly wrong when banking systems become stressed.

We find it interesting that many of the countries in the table above that harboured banks with low profit margins before the GFC find themselves at the centre of the Euro Debt Crisis today, which is likely to result in the lowering of living standards for the general population in those countries for years to come.

Canberra and the union movement should celebrate our strong banking system and the benefits that it brings to our community.  The media should expose those attempting smear the banking system for political gain as “lightweights”.

Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at December 2011.  The views expressed in this article are personal views of Mark Draper and are not necessarily the views of the dealer group.




Published in Investment Advice