Australia's major banks have have come out on top in the league table of most profitable in the world. Thanks to a number of market trends and government policies, major banks have been able to reduce their cost of lending. Great, right?
Well, unless you're a shareholder in a bank, no. At the same time as most bank managers are rubbing their hands with glee as their lending costs plummet, they're taking this opportunity to increase the amount they charge you for the same privilege.
So, what's going on?
The Reserve Bank of Australia's (RBA) quarterly bulletin for March showed that our biggest banks averaged around 15 per cent return on equity in December 2015 – one of the common ways of measuring profit.
To put this into perspective, Canada has 14 per cent, while the United States and banks in Europe both fell below 10 per cent. Australia's banks have not stuffed so much profit away since 2009.
Wait, isn't this good news?
Think about what a bank's main purpose is. They exist as a place to store your money, they then invest it, lend it for things like home loans, manage it and ultimately should be paying you for trusting them with your hard-earned cash.
And yet despite the big four reaping in an annual $30 billion in profit – not revenue, pure profit – and despite the RBA helping the banks out with a record-low cash rate, interest rate hikes have put an extra $1 billion per year strain on Australian families, the ABC reports.
"The major banks' implied spread, being the difference between average lending rates and debt funding costs, increased by around 20 basis points over 2015," the RBA says. "This change was driven in roughly equal parts by the decline in average funding costs relative to the cash rate, and an increase in the average lending rate."
This isn't right! Banks need to go back to basics and treat their customers as customers, not as a commodity. For that exact reason, customer-owned banking exists. Give CAPE a call if you'd like to become a unique member of your bank, not just one of its many, many assets.