home
	site map
	bank horror stories
	informative articles
	financial management tips
	financial news
	bank buster toolkit
	valuable resources

  Bank Rip-Offs Revealed - Click for Video 

The banks have been quick to justify their fee hikes and branch closures in recent years by pointing to the costs that they incur in providing banking services.

However, when one examines bank profit growth in the last decade, this appears to be a pretty flimsy argument. Interestingly, it appears that bank profits and the bank’s share market capitalisation have grown at an unprecedented rate over the last 7 years – or, should we say, from the time when fees hikes and branch closures started to become and issue with Australian consumers. Funny about that, isn’t it?

We’ll first take a look at the stats on Fees over the last 7 years, and then correlate these with the bank’s Profitability, Assets, and Market Capitalisation. Finally we’ll look at some numbers for Employment and Branch Closures.

FEES

Fee income from households has risen from $1.2 billion in 1997 to $2.7 billion in 2002, continuing to line the pockets of Australia’s big banks.

Across all categories, fees charged by banks to the household sector jumped 17% from 2001 to 2002, up from $2.31 billion to $2.70 billion.

The increases from 2001 to 2002 over varying categories were as follows:

• On savings accounts, Australia’s Mum’s & Dad’s contributed $943 million in fees on their deposits, a 9% increase over the previous year

Fees on housing loans jumped 19% to $563 million in 2002, up from $473 million in 2001

Credit cards were also a winner, with fees soaring 30% to $440 million

Personal loans took the cake however. The income banks earned from fees on these was up a staggering 33% to $395 million

Those raises beat any pay-rise we’ve ever heard of. But it was not only households, or consumers, who were helping to fill the bank’s coffers. Small business is being slugged too.

On 14-Nov-2002, in the Senate Parliamentary Debates, Senator Ludwig (Labour minister), in a question addressed to Senator Abetz (the minister representing the Minister for Small Business & Tourism), quoted Financial Services Consumer Policy Centre findings that small business was paying $2.5 billion each year in bank fees. He also stated that fees charged by banks to small business are rising at the staggering rate of 18% per annum.

Across all sources, the Australian banks generated a whopping $7.8 billion in total from fees alone for the year ending June 2002.

CAPITALISATION, ASSETS and PROFITABILITY

The banks seem largely indifferent to the backlash in consumer sentiment towards them. If we take a look at the table below, one can begin to understand why. The table below lists the approximate share price (rounded to nearest .50¢) for each of Australia’s Big 4 Banks as at June each financial year for the year’s 1997 through 2002:

The table below looks at what the share prices for the Big 4 were nearly a decade earlier and shows the increase in value they have had as a percentage figure:

Averaged out, the increase was 511% in just under 10 years. Has your personal income increased by 500% over the last 10 years? Be nice wouldn’t it?

Australia’s big four banks now all list amongst the 7 largest companies listed on the Australian Stock Exchange.

The NAB, Australia’s largest bank, had a market capitalisation of $5,000 million in 1989 but had grown to be worth nearly 10 times that, $50,000 million in 2003. The NAB now ranks as the 19^th biggest bank in the world in terms of market capitalisation, just behind Deutsche Bank and ahead of Dutch giant ABN Amro. That’s not bad for a small country like Australia, especially considering that Australia and New Zealand together only account for about 2% of the world’s economy.

So what’s the secret? What’s behind the stunning success of Australia’s banks? It could well have to do with the fact that Australia’s banks have now risen to be the second most profitable in the world on a return on equity basis. Ever wonder who’s paying for that exceptional profitability…

Source: KPMG – return on equity 2000

An October 2001 Australian Bankers Association factsheet listed the total assets of the big four banks at $770 billion, with the banks earning $4.13 worth of income for every $100 worth of assets.

Annual growth in assets under management for the big 4 banks was up 8.8% in the year to June 2001, up 18% for the year ending June 2000, and averaged 16% per annum for the preceding 5 years.

EMPLOYMENT AND BRANCH CLOSURES

Of course it is not just higher fees which are contributing to profitability. A good dose of cost-cutting always helps the balance sheet as well. Too bad if it happens to be at the expense of customer service and national employment.

Despite the spiralling profits we have seen, the banks contribute less and less to the overall economy in terms of employment. In 1990, the finance industry accounted for nearly 5% of total employment in Australia. Despite astounding growth in the banking sector since that time, 10 years on, as a consequence of extensive redundancies in the industry brought about by branch closures and cost cutting, the finance industry was only providing just over 3.5% of total employment, with an 18% decline in numbers employed occurring in the last six years to the end of 2002.

The table below shows the total number of employees working for the Big 4 banks as at Sep 93 and Sep 02, and the percentage decline in numbers employed which has occurred:

Whilst some of these declines in numbers may not appear too dramatic, one must also take into account that the banks have made major acquisitions within this period. For example, Westpac (WBC) absorbed Challenge Bank as well as the Bank of Melbourne; the Commonwealth (CBA) took out Colonial First State; etc… Hence, not only have the Big 4 become much bigger, they have further managed to shed the numbers of people they employ in the process quite significantly despite their expansion.

On the issue of branch closures, APRA data shows that in June 1990 there were 6921 Bank Branches and 7712 bank agencies. By June 2001, there were only 4712 bank branches and 5043 agencies. That means more than 33% or 1/3^rd of branches and agencies have been closed over that period.

 © Copyright 2003, Niche Mortgage Solutions Pty Ltd.  All rights reserved.              Copyright Information