With the Reserve Bank forecasting $1 trillion in extra earnings from its big banks over the next four years, the Reserve’s data has changed the way we think about the Australian economy.
The new data from the Australian Bureau of Statistics (ABS) has the big banks set to earn around $300 billion over that period, with more to come.
The ABS data shows the average annual income from a bank in Australia has grown by around 2 per cent per annum over the past 10 years.
It’s not all good news, however, as the average profit for all banks is expected to decline by nearly $100 billion over the same period.
What the data reveals is that the big four are not only enjoying record profits, but are also doing well, with average annual earnings growing by over 1 per cent each year.
The big four banks account for around 40 per cent of the total Australian economy, according to the Reserve.
However, the data shows that the average bank in the country is outperforming the economy overall, with the average Australian bank being on course to be the fifth largest financial institution by revenue.
And as the economy continues to grow, the average income of a bank will only increase.
“Australia is a highly competitive and global economy,” Reserve Bank of Australia Governor Glenn Stevens said.
“The continued improvement in economic conditions is an indication that the economy is continuing to strengthen, and that banks are continuing to invest in the future.”
It will take time for the big three banks to see their profits rise, but Stevens is confident that the industry is headed in the right direction.
“There’s no doubt that the banks will continue to improve and that they will see continued strong growth in the years ahead,” he said.
The data has been a big surprise to investors and analysts.
“Banks’ earnings growth has been quite disappointing in recent years, as they are generally in the red,” said RBC Capital Markets senior economist Robert Nesbitt.
“That credit has created a market demand for a wide range of financial assets, including credit-related debt, so that these banks have been able to earn higher profit margins on credit than they otherwise would have.” “
In the longer term, the banks are likely to benefit from the recovery in housing prices, which is another factor that has been helped by the big changes in government policy. “
That credit has created a market demand for a wide range of financial assets, including credit-related debt, so that these banks have been able to earn higher profit margins on credit than they otherwise would have.”
In the longer term, the banks are likely to benefit from the recovery in housing prices, which is another factor that has been helped by the big changes in government policy.
However the Reserve expects to see these trends continue as the industry becomes more diversified.
“While the big six banks’ share of Australian financials is expected decline, the overall share of the financial industry will grow,” it said.
In the next two years, more than 40 per in-house and out-of-house banks will be formed, with many of these new banks looking to diversify away from the big five banks.