It’s reporting season for Australia’s banks and you could say they are disappointing their owners.
Commonwealth Bank, for example. It reported $11 billion in profit after tax, which was up 7 per cent on the year. But in the days after handing down the result, its admittedly lofty share price has fallen 5 per cent.
Take a step back though and consider the profits of CBA in any other context.
RELATED
The bank made $30 billion in income (i.e. revenue). And turned that into $11 billion in cash profit after tax. It’s a very good game to be in.
A bank business model is different obviously to other types of business. They don’t buy something, mark it up, and sell it on. Not exactly. Acknowledging that, let’s compare CBA to two other Australian giant businesses.
In 2025, BHP made US$51 billion in revenue and turned that into US$11 billion in profit. Crazy high prices for commodities, combined with low production costs, are making their life easy.
Wesfarmers is also gigantic. It turned $24 billion in revenue into $1.6 billion in profit in a recent six-month period.
Neither of those businesses turn revenue into profit at quite the rate CBA does.
High risk, high return? Not exactly
Profit can, of course, be justified. For example, some businesses are highly volatile and highly risky. Big profits come around only sometimes. Let’s check in with how risky CBA’s business is.
Perhaps we can look at their home loans loss rate. What would you guess? Two per cent? Half a per cent? In fact, it rounds to 0.00%, as the next graphic shows.
It can’t get much better than this. · CBA
CBA certainly seems to have the core business sorted out.
The nation’s biggest mortgage lender said 68 per cent of home loan customers are ahead on repayments and just 0.4 per cent owe more than their home is worth. The bank has $553 billion in home loans oustanding, of which less than half of $1 billion is currently deemed “non-performing, not well-secured.” Even on those, the losses will be a tiny share.
Profitable banks are safe banks. Nobody wants a financial crisis. But we are not near that.
Banking in Australia is more than just secure. It’s rich and thick and dripping with gravy. Surely someone out there wants a piece of it.
A banking equivalent of Aldi could arrive on our shores, and take a huge bite out of the local banks’ business. The upside for consumers could be massive. Lower rates on loans. Higher rates on deposits. Meaty sign-up bonuses as they try to win customers. And more than that, pressure on our lazy locals to lift their game.
The ING interloper
The truth of the matter is that foreign banks have showed up. None, however, have quite managed to do to banking what Aldi did to groceries.
Perhaps ING got closest. It showed up here in the 1990s, and worked really hard to get deposits. They paid good money on their ING direct saving account. At the time I was building a house deposit and had cash lying round. I pulled it out of a big Aussie bank and stuck it in the Dutch competitor and it was great. Sign-up bonuses. High interest rates. Low fees. Free ATM withdrawals back when that mattered. Life was good.
The Dutch bank, which rebranded from ING Direct to ING not so long ago, is now fifth for home loans in Australia.
RELATED: New bank Revolut launches in Australia to take on Big Four
But ING never quite hit the scale of the big four banks. Their presence certainly hasn’t stopped the big four banks from becoming some of the biggest sources of company profit in Australia.
Surely someone else would like to do what ING couldn’t. Can’t Wells Fargo or Bank of China see the low-hanging fruit?
Australia’s oligopolies and ‘unaware customers’
Australia has an big organisation that wants to unleash competitive tension. They have argued our banks are having a laugh.
“Larger financial institutions, particularly but not only in banking, have the ability to exercise market power over their competitors and consumers… Many of the highly profitable financial institutions have achieved that state with persistently opaque pricing; conflicted advice and remuneration arrangements; layers of public policy and regulatory requirements that support larger incumbents; and a lack of easily accessible information, inducing unaware customers to maintain loyalty to unsuitable products,” wrote the Productivity Commission in a 2018 report.
Hearing that, it would be easy to be angry at every dollar of profit. But we need also to acknowledge where those profits go.
Australian super is largely invested in Australian stocks, and Australian stocks are largely comprised of banks. If you have super, or shares, you are not only victim, but also beneficiary of the gigantic profit machine spinning at the heart of our economy.
And the older you get, the more likely it is that you’re on the good side of the ledger. Which may be one reason why the motivation to promote more competition is so muted.
Get the latest Yahoo Finance news – follow us on Facebook, LinkedIn and Instagram.