AUSTRALIAN banks have creamed up to $3.7 billion in profits as a result of the Rudd government’s bank guarantee, new research shows.
The lack of competition has also allowed Australia’s major banks to pocket almost four times the profit per customer compared to its rivals in the US and UK. The Industry Super Australia submission to the Financial System Inquiry backs the call by regional banks for a fairer playing field.
Since the global financial crisis and implementation of the bank guarantee, the Big Four’s dominance of home lending has grown from 63 per cent to 85 per cent of the $1.7 trillion mortgage market.
This gouging of home buyers has delivered bumper profit growth to the Big Four.
In a submission to the Federal Government’s root-and-branch review of the financial system, the ISA says the majors have pocketed between $1.2 billion to $3.7 billion over the 2007-12 period.
This comes after the four most prominent mid-tier banks — Bendigo and Adelaide, Suncorp, Bank of Queensland and ME Bank — joined forces earlier this week to call for an overhaul of the sector to boost competition and deliver lower charges to customers.
The major banks — ANZ, Commonwealth, National Australia Bank and Westpac — have long rejected any plans for a levy on the “too big to fail” guarantee claiming their dominance of the home lending market and lower funding costs were a result of better risk management.
Strong balance sheets and well structured fund profiles are instead seen by the majors as the key reason they are able to borrow at cheaper rates on global markets than the smaller mid-tier banks.
ISA chief executive David Whiteley said making sure the nation’s assets are sweated better will be key to lifting productivity and funding the next round of infrastructure development.
“The bank guarantee provided stability but it is time to look at more efficient capital formation,” he said.
“In terms of retail banking, Australia’s big four banks also have higher profit per customers than the top banks in comparable countries. We need to make sure everything is put on the table for discussion.”
ISA is also prepared to invest $15 billion over the next five years in Australian infrastructure if the right projects can be found.
This would rise to $100 billion if the entire superannuation sector lifted its asset allocation for infrastructure to the same level as the ISA, Mr Whitley said.
The nation’s retirement savings are tipped to swell from $1.8 trillion this year to $3.4 trillion by 2028, outstripping the banking sectors asset base.Author: Stephen McMahon
Source: Herald Sun
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