Thursday, October 28, 2010

The Joke Is On Us

Well it’s always easy, not to mention fun, to take a shot at the big banks. It’s even more tempting in the wake of record profit announcements, and so far we have seen the NAB report a profit of $4.2 billion and today the ANZ announced a record cash profit of $5.1 billion. Not bad going for institutions which are still carping on about the increased costs of funding and the impact of the global financial crisis. While the global financial crisis was real, and many businesses are still suffering from the fallout, it would seem to be increasingly obvious that the big banks have not suffered one bit. Any ill effects that might have been experienced by the banks have been dealt with by simply passing on the pain to their customers, either in the form of higher interest rates and higher fees, or by restricting access to the credit which might have made life easier for their business customers. Really, it seems that as far as the banks are concerned the GFC has been nothing but an excuse to justify their own predatory practices, and an opportunity to exploit the vulnerability of others.

Of course, there is nothing wrong with banks, like any other business, making profits. Indeed there would be something seriously wrong if they did not. But the thing which bothers most people is the context in which those profits are generated against the backdrop of exorbitant fees and excessive increases in interest rates. On the one hand the banks keep bleating about how difficult conditions are to justify raising interest rates independently of the Reserve Bank, while on the other they manage to produce record profits. They moan about the margins on interest rates, but the truth is that margins are now back up to pre-crisis levels. They moan about offshore costs, but the Reserve Bank says that those costs are now easing as the worst of the GFC recedes into distant memory. They mutter about user pays, but what they really mean is that they refuse to pay for their own overheads.

Yes, it’s all to easy to take a shot at the big banks, but while it might even be fun, in the end the joke is on us, the customers paying more than we should.

1 comment:

Anonymous said...


Bank bashing is fun, but I'm wondering about the real increases in the banks' profits - are they being compared in real terms? (I'm not employed by a bank, BTW). If they're not being compared in real terms, ie where last year's numbers are adjusted for inflation and other applicable indices, then the comparison is misleading.

To really examine the banks' profits: take the profits for two years which are a decade apart, for instance. Then compute the Compound Annual Growth Rate (CAGR), or Internal Rate of Return (IRR), or similar figure which can then be compared against the average inflation rate over the same period. That will tell us about the real growth in the banks' profits, and let us compare it against profit growth for other industries. Then we'll know if we're really being ripped off, and by how much!


O. Mouse