BANK PROFITS – DIVIDENDS PROVIDE A STRONG FOUNDATION
FOR AUSTRALIANS’ RETIREMENT SAVINGS

Sydney, 9 November, 2005: The Australian Bankers’ Association (ABA) says the profits created by Australian banks¹ are crucial to the returns of Australia’s superannuation funds which assist in helping Australians save for retirement and provide income for retirees.

Banks make up one quarter of Australia’s stock market capitalisation and are the most important investment stocks.

Currently, 9.5 million Australians have 27 million² superannuation accounts. Australians who are building a sound retirement nest egg are increasingly dependant upon strong business profit growth.

Over the last five years, banks have generated strong profits which have helped increase superannuation returns by offsetting poor performances in other sectors. In the last 12 months, the performance of the banking sector index increased by 21% compared to an increase of 13% in the broad index – the S&P/ASX 200.

An estimated 70% of the $13.8 billion of the banks’ profits is paid to investors who own bank shares directly or indirectly through their superannuation funds.

This year, banks will pay around $10.1 billion in dividends to investors. This can be categorised as follows:

• $4.4 billion will go to people who own superannuation – via superannuation and other funds;
• $2.5 billion will go to people who hold bank shares directly – this includes tens of thousands of retirees; and
• $3.2 billion goes to other payments which include foreign investors (around 25% of Australian bank profits are earned overseas).

Income generated by banks is not only shared with investors but profitable banks also invest in the future. Australian banks reinvest around $3.7 billion into growing their businesses, including better technology, expanding the range of products and services offered to customers and training staff. This future investment is a means of ensuring the sustainability of dividend payments into the future.

For those low income³ Australians who do not have bank stocks or do not benefit from superannuation fund returns, banks provide free and low-cost banking.

David Bell, Chief Executive of the ABA, said: “Banks are not driving increasing profits through charging personal customers with fees on their day-to-day transaction accounts. Only 2% of bank revenue comes from these fees.”

“The reason why banks are profitable is because the Australian economy is very robust and has been growing strongly for more than a decade. The stronger the economy, the wealthier people become and the more they borrow for housing, other personal goods and invest to provide for their retirement.”

“Banks have increased profits by reducing their operating costs. This has been facilitated by increasing the supply of electronic banking services. Nearly 90% of transactions today are done outside the branch.”

Some other key facts on bank profits are:

• Australian banks are profitable institutions, not only within Australia, but also when compared to banks overseas.
• One of the key reasons cited as to why Australia was able to withstand the Asian financial crisis was the strength, safety and security of our domestic banks.
• Australian banks source around 25% of their profits from overseas - this is a remarkable export success story.
• ABA member banks employ around 125 000 staff. In August 2005, wages paid by the financial sector are among the highest of any industry. Average weekly earnings in finance are $1254 - well above the all-industry average of $1006, according to figures from the Australian Bureau of Statistics.

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS


1 For this media release, the ABA has referred to the results announced by the four major banks – Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd, Westpac Banking Corporation.

2 Rainmaker Information Services.

3 Five million Australians are eligible for basic bank accounts offered by Australia’s banks. Eligible customers are holders of the Commonwealth Government Health Care Card, Commonwealth Government Seniors’ Card and the Commonwealth Government Pensioner Concession Card.