Bank Results

The following summary results are based on data reported at the end of the profits reporting season for 2010.  It includes data for the main Australian retail banks.

Profit

The profit measure, Net profit attributable to ordinary shareholders, was $22.7 billion for 2010, an increase of 49% over the previous year.   Out of these profits, record levels of dividend payments were made to shareholders in 2010 (i.e. to superannuation funds, households and others) amounting to $15.8 billion.

The previous year, 2009, bank profits fell to the lowest level since 2004.  As such, the strong increase in profits this year (49% increase) needs to be considered within this context.  That is, it is off a ‘low-base’ at which time bank profits were hit by the height of the global financial crisis.  Profit outcomes over 2010 look to be restoring profit levels to more normal outcomes rather than signaling markets are overperforming.

A quick look at the profit results on a half yearly basis provides more analytical detail.  It is clear that bank profits fell substantially in September half 2008 (falling by almost 20%).  It remained at this subdued level the following half (March 2009) before falling a further 33% in September half 2009.  In fact, from the high of $10.66 billion reached in March half 2008 bank profits fell 46% by September half 2009.

In general, around 80% of bank profits are from their Australian operations while about 20% are derived from their overseas operations.

Dividends

This year, 2010, banks paid out $15.8 billion in dividends, a record outcome.
 
Over the past five years, a total of $70.5 billion has been paid out in dividends by banks. Of course, much of this has gone into superannuation funds which support the income needs of current retirees and maintain a growing retirement savings pool for future retirees.

Operating income

In 2010, operating income of Australian retail banks increased to $78.0 billion from $72.2 billion the previous year. 

Bank profits (either before or after tax) fell significantly as a proportion of their operating income during the global financial crisis.  In 2010, there has been some recovery in these ratios but not to the levels prior to 2007.

Banks operating income can be broken into two main components: net interest income and fees and commissions.  Over the past six years, net interest income has accounted for 58% to 65% of banks operating income while fees and commissions have accounted for 35% to 42%.
 
Net interest income is made up of interest received by banks less interest paid out.  Over the past five years, the interest paid out has averaged at 68% of the interest received.

Note that fee and commission income should not be interpreted as fee income.  For readers wanting more information on bank fees, please go to the website section:  Banking Facts and Figures – Fee Income.

Operating expenses

In 2010, banks operating expenses were $38.3 billion, a 9% increase over the previous year ($35.1 billion).

Staff expenses are the highest component of operating expenses for banks.  Over the past five years, staff expenses averaged 55% of operating expenses.  This year, 2010, $21.0 billion was spent on staff expenses.

At $3.5 billion, occupancy costs accounted for 9.1% of operating expenses in 2010 while at $3.4 billion, IT costs made up 8.9% of operating expenses.

Tax paid

Over the past five years, banks have paid out $38 billion in tax with $7.9 billion being paid in 2010.

updated December 2010