Why Are Australian Banks Making Record Profits?

Commonwealth Bank posted a record annual profit of $10.2 billion on Wednesday, during what it has described as a "challenging period" for customers. 

The profit for the financial year that ended on June 30 was up 5 per cent on last year’s, which also saw the bank’s share price jump 2 per cent, and dividends paid to shareholders jump 17 per cent. 

Chief executive Matt Comyn said in a statement he recognised the bank’s customers were forking out more, but said that this profit would give the bank "resilience" for the future.

"It has been an increasingly challenging period for our customers, dealing with rising cost of living pressures,” he said. 

"Our results demonstrate our continued focus on supporting our customers, investing in our communities, and providing strength and stability for the broader economy." 

Commonwealth Bank isn’t alone, Australia’s big four have all done really well lately.

Earlier this year, NAB announced a $4 billion half-year profit in the six months to March 2023 – a 17 per cent increase from the same period a year ago. 

ANZ also revealed a record-breaking profit for the same six-month of $3.8 billion, up 23 per cent.

And Westpac reported a $4 billion half-year profit, up 22 per cent.

Banks around the world are cashing in amid high inflation, but Australia’s bank’s profits are well above the global average and in 2021 Australia’s bank assets measured against GDP ranked 12th in the world. 

The short answer: Australia’s high interest rate, interest margins, the high number of people in debt at the moment, and capitalism.

Quick refresher: all banks and bank accounts have different interest rates. But the interest rate, which is what’s talked about a lot in the news is what the reserve bank of Australia, Australia’s central bank, sets, and that’s the rate under which it loans money to commercial banks who then set their own profitable interest rates to loan money to people and businesses.

CBA said their record profit was thanks to a 0.17 percentage point rise in net interest margins, which is the difference between what the bank pays to borrow money from the Reserve Bank, and the interest rates it gets from loaning it to you.

"Margins increased year-on-year due to the rising interest rate environment, partly offset by the impact of increased competition, particularly in home lending," it said in a statement.

First of all, our banks are privately owned and it’s a free market so they’re free to set their rates as they please. But our government also hasn’t stepped in to do anything about it, unlike some other countries.

This week Italy’s right-wing government announced a 40% tax on banks benefitting from higher interest rates amid high inflation, in response to similar record-breaking profits. 

Deputy Prime Minister Matteo Salvini said on Monday: “The burden deriving from the cost of money has … doubled for households and businesses, what current account holders receive [from banks] has certainly not doubled.”

Other countries in Europe including Spain and Hungary have already imposed similar taxes, but in Australia, it didn’t happen during covid and it’s looking unlikely that will happen now.

Aleksandra Bliszczyk is the Deputy Editor of VICE Australia. Follow her on Instagram.