Source: Bank for International Settlements.
Australia's major banks are the most profitable in the developed world, the Bank for International Settlements says, in figures that highlight the big four's consistently high returns as an inquiry investigates competition in the sector.
The major banks' pre-tax earnings as a share of their total assets rose to 1.28 per cent in 2013, higher than 10 other developed countries, the influential BIS said in its annual report on Sunday night.
It is the fourth consecutive year in which the sector's profitability has been the highest among developed countries assessed by the BIS, including Britain, the United States, Japan and various European nations.
The comparison also showed Commonwealth Bank, Westpac, National Australia Bank and ANZ have wider net interest margins and lower costs than most of their peers overseas.
The US had the next most profitable banks, with earnings of 1.24 per cent of assets, followed by Canada, where returns were 1.06 per cent. The only nations with higher profitability on the annual list were the fast-growing emerging or BRIC economies – Brazil, Russia, India and China.
The BIS said lenders around the world were benefiting from improving profitability and building up capital faster than expected as they recovered from the global financial crisis.
But Australia's stand-out profitability comes as the financial system inquiry being led by former Commonwealth Bank chief executive David Murray also examines the intensity of competition in the industry.
Regional banks, consumer groups, credit unions and building societies are calling for changes to whittle down the big four's advantages, especially in the $1.3 trillion mortgage market.
Chief executive of the Australian Bankers Association, Stephen Munchenberg, said the profitability of the country's banks reflected the relatively good shape of the economy, not a lack of competition.
"We've got stronger economic growth and we've got lower unemployment than a lot of countries," he said. "The banking industry believes that markets and bank products are competitive," he said.
Mr Munchenberg said ABA members – which include the regional banks – believed banking was competitive but it supported Mr Murray looking at how to lift competition further. "If there are barriers to further competition, the inquiry should look at those being removed," he said.
Buoyed by very low bad debts, Commonwealth Bank, Westpac, National Australia Bank and ANZ are tipped to make combined profits of $29.7 billion this year, according to Morningstar estimates.
Mr Murray is due to deliver an interim report in mid-July, and senior Treasury official David Gruen last week said one issue on the agenda was the balance between promoting a competitive financial system and one that was stable.
Morningstar's head of banking research, David Ellis, said he did not think Mr Murray's report would recommend major changes that would upset the industry's earning capacity. The high earnings were explained by falling bad debts and the big four's strong market position, he said. "Bad debts have been falling since 2009, which has lifted profitability."
The BIS said Australian bank net interest margins – a gauge of banks' cost of funds compared with what they are charging for loans – were 1.79 per cent of assets, behind Spain and the US among developed nations.
Operating costs were 1.11 per cent of assets, the third-lowest behind Sweden and Japan. With global interest rates at record lows, the BIS argued the key challenge facing central banks was returning borrowing costs to more normal levels.