Australia’s banks have seen a dramatic 30 per cent surge in profits over the past year, largely as a result of a massive drop in the amount of money being paid out in interest on customers’ savings accounts, new figures show.
But while the banks appear to have cut billions off the interest they pay to banking customers, they have simultaneously managed to keep income from mortgage repayments at much the same level as the previous year – a discrepancy the banking sector was unwilling to explain when pressed by The New Daily.
This week the Australian Prudential Regulation Authority (APRA) released its quarterly figures on ‘authorised deposit-taking institutions’ (ADIs), a category that includes banks, building societies and credit unions.
The figures revealed banks had delivered profits of $35.87 billion over the 12 months to September.
That was a huge $8 billion increase in profits from the previous 12 months.
As expected, by far the biggest single source of income for the banks was the interest paid by Australians on their home loans.
Over the year, Aussie homeowners paid the banks $77.69 billion in interest on their mortgages.
That was very slightly down on the previous year’s figure of $77.75 billion. Income from business and personal loans was also essentially flat, at $39.8 billion.
It was not, therefore, increased revenue from mortgages and other loans that boosted the banks’ profits.
Rather, the biggest single boost came from a nearly $3 billion reduction in the amount paid out to customers in interest on bank deposits.
Or to put it another way, it was the banks’ ability to borrow money from everyday Australians at historically cheap rates that helped push their profit margins up.
In the 12 months to September 2016, the banks paid their customers $49.45 billion. But this year, the figure dropped to $46.60 billion.
Including all interest-based expenses, the banks saved around $4 billion thanks to lower interest rate payments.
The banks also raked in almost $3 billion on increased fees and commissions.
And they reduced the amount paid out in salaries and wages by more than $200 million, bringing the total expenditure on ‘personnel’ to $27.04 billion.
In total, the banks are now collectively owed $1.9 trillion by mortgage borrowers, while they owe their banking customers $2.7 trillion in deposited money.
Explaining the data
Data from the Reserve Bank of Australia showed that average interest paid on savings accounts and terms deposits had fallen across the board during the two years to September 2017.
Interest on an average online savings account went from 1.85 per cent in September 2015, to 1.6 per cent in September 2017. That was a 25 basis point drop, putting it just 10 basis points above the RBA’s cash rate, which currently sits at a record low 1.5 per cent.
Over the same period, the average standard variable rate mortgage fell by the same amount – 25 basis points – from 5.45 per cent to 5.20 per cent.
But while the nominal percentage point decrease was identical, in real terms it was a lot worse for bank deposits, because they were starting from a much lower level.
When worked out as a true percentage, bank deposit rates fell by 13.5 per cent, while mortgage rates fell by just 4.6 per cent.
In other words, the fall in deposit rates was three times greater than the fall in mortgage rates.
Even without any other factors at play, this would go a long way to explaining the massive discrepancy between the changes in mortgage income and interest paid on deposits.
On top of this, the RBA data showed that interest rates on home loans for investors had risen across the board in this period, usually by between five and 10 basis points.
This reflected new lending restrictions for property investors imposed on the banks by APRA.
The New Daily put it to the Australian Bankers Association – the peak body representing the banks – that APRA’s latest figures demonstrated banks were disproportionately penalising bank customers for the Reserve Bank’s record low cash rate of 1.5 per cent.
A spokesperson said “many things” were driving the total income on loans and the total cost of funds for banks, adding that interest rates were “only one component”.
“No conclusion on interest rates can be drawn from the data you have presented,” the spokesperson said.