Do you invest in the share market?
Banks are not your friend, nor are they mine.
Do you invest in the share market?
The financial year results were released a while ago now for 2023. And guess what?? The banks are in the green again. Not just in the green but Australia’s big four banks reported a record full-year profit of nearly $32.5 billion between them in the 2023 tax year when I wrote this article almost a year ago. Due to my current employment I have considered if publishing it is wise, but here we are. The lack of sympathy for the everyday Australian missing from this article for NAB, boasting their $7.1b profit, has driven me over the edge.
For the 2023 financial year the Big 4’s profit of nearly $32.5 billion is up 12.4 per cent compared to the previous financial year). The Commonwealth Bank posted the largest profit ($10.2 billion) followed by NAB ($7.7 billion), ANZ ($7.4 billion) and Westpac ($7.195 billion).
Why are we always so happy for them?
Why is it always touted in the legacy media as a good thing with comments like ‘it proves us of a robust Australian Economy’ and ‘we all gain through growth in our superannuation balances and our stock holdings’ and ‘we should show sympathy for their misfortunate situation given the several headwinds the banks are combating?’
Here are some examples of the toned articles we are always spoon-fed. The tone is always along the lines of, ‘it’s a hard gig and they are doing the best for us.’
Here is an example for each of the big 4 profit reporting in the past year.
Are they doing what is best for us?
Banks are, by design, complex machines with many moving parts, but thinking simply, what needs to happen to make such large profits? And newsflash, they reason for the profits isn’t because they are just smarter than you, or smarter than rest of us.
If you sat aside 10 minutes to read and absorb these 4 articles above, you were likely by design bamboozled by the commentary and high-level analysis. For me there is two items to take away from the programming of these articles.
1. All 4 lenders explain that they are seeing an increasing number of people are falling behind on their loan repayments and they all expect this trend to increase.
2. Their NIM (Net Interest Margin) sits around 1.70% each. Westpac reports 2.00%.
Let’s change of focus and look at it from a different angle so you can adjust your thought process and set yourself a different mindset for when we see these headlines every 3, 6 and 12 months of every financial year. If you read these articles carefully, you will see that ANZ, like the other major banks sit at around a 1.70% NIM (Net Interest Margin) which is the key driver of their profits, a banks operational costs are largely covered by other income streams such as management fees and transactional fees. Westpac reports a 2.00% NIM for the reporting period, and Westpac say they extended their margins by another 9 basis points (0.09%). The CBA decide to just say their NIM is falling because they are ‘good guys’.
NIM (Net Interest Margin)
What is NIM. Whenever you see NIM and discussion of it, remember it is a simple calculation i.e.
- If the average interest charge on a loan is 6.30%.
- And the bank has a 2.00% NIM for the period.
- Then the average cost interest cost for the money the bank lends is 6.30% - 2.00%.
- Cost of money = 4.30% (which is cheaper than our current cash rate of 4.35%).
So, if you just take one customer as an example who borrowed $1,000,000 and project out earnings, you can quickly see how they make their money.
$1,000,000 x 2.00% NIM = $20,000 of extracted wealth from this one customer. This isn’t for the duration of the loan. This is the amount the bank makes after costs, every year, based on the average balance on the loan they hold for that year. So, from this you can conclude that whatever your personal average annual loan balance was for the 2024 tax year ‘times by’ your banks reported NIM = annual bank tax. You can do this with your own situation right now in 10 seconds… what was your annual bank tax??
Easy right. Get a banking license, gain consumer confidence for deposits, build a credit department to facilitate lending, extract $20,000 every year, for ever $1,000,000 lent. Rinse and repeat and pronto = billions for your shareholders. Isn’t this the very definition of Usery? (Usury is the practice of making loans that are seen as unfairly enriching the lender).
Why is this parasitic corporate behaviour allowed to continue...
Who regulates banks?
Government entities – APRA and ASIC. (In a previous role, I was 1 of only 5 executives dealing with ASIC as a nominated fit and proper person for oversight management for my past employer.)
Who regulates credit appetite?
Government entities – APRA and ASIC and bank executives.
Who regulates costs of funds in Australia?
Government entities and non-government entities – APRA and ASIC, the RBA, ratings agencies and market confidence.
What happens when a bank fails?
We don’t know 100% what happens in Australia yet as we haven’t experienced a collapse of our housing market in several decades, but in the rest of western society the taxpayers have bailed them out (or in) on every occasion.
If the government regulates the banks, why are the banks allowed to extract such vast amounts of wealth from the people our governments supposedly serve?
The first reason that pops into my mind is that maybe it is for donations to stay in power?
https://greens.org.au/news/media-release/donations-data-shows-how-banks-buy-outcomes
as per the above, it appears to be maybe $400,000 only in donations. Unfortunately, the donations route doesn’t appear to be the reason. The more research you do in this space, the more you see that our banking industry, nor any industry, appear to donate all that much to political campaigns in Australia, at least on paper and on what is reported in the public domain.
Maybe the fact that the banks don’t even need to donate heavily to the government to continue these practices is because the system has long been captured, the news cycle and education apparatus won’t dare speak about these topics, and it is assumed that the people of Australia, and every western nation for that matter, are too docile and distracted to care or rebel against these practices.
Some more data points on donations for those interested…
https://www.bankingday.com/anz-ey-tipped-political-donations-labors-way
https://www.crikey.com.au/2021/02/02/political-donations-19-20-banks/
The tone from these articles, as is the case in all banking media and commentary, follows the same narrative and directs the end thoughts for the reader to be along the lines of … ‘the banks shareholders are doing well, so it is a good place to park your savings…’ Consumers of debt, and the population in general need to defect from this way of thinking and really educate themselves on what a large bank profit really means to society.
Ask yourself, what is the societal benefit to allow this practice to continue?
To summarise;
- The government regulate and issue a bank’s license.
- The government make the rules and set the environment for lending criteria and risk.
- The government heavily regulate the banks and non-banks to ensure their set lending criteria are met.
- Both the red and blue side of our government accept some of the largest political donations annually (which isn’t much is the grand scheme of the money supply).
- Banks and banking executives make some of the largest incomes in Australia.
- The government, and therefore the taxpayer, are the back stop if a systematic market failure occurs.
- Banks make vast annual profits at the expense of their customers.
- Banks do not create anything new or add value to any world economy, they only extract a ‘bank tax’ from the customers they serve, to be filtered through to their shareholders.
All the risk sits with the government (and therefore the people of Australia).
All the reward sits with the bank owners and operators.
Why have privately owned banks in existence at all?
Without sitting in executive board meetings, you will see from time-to-time direct evidence that governments absolutely control what banks are allowed to do. Here an example from the USA to cap credit cards at 10% is proposed, and the media, like always, are mouthpieces for the Banking industry and driving profits. https://www.cnbc.com/2024/09/24/trump-credit-card-interest-cap-election-harris.html
Why not use these ‘bank tax’ funds to help government costs and reduce government debt?
Or put a ceiling on bank profits, reduce banks share prices & dividends and encourage investors to put their hard-earned money into industries which works towards a better future for us all?
Or better still put caps on NIM and rates and leave this money in the hands of the asset holders/borrowers and let them thrive and contribute their extra money in the economy as they see fit.
Wealth Extraction
Think about this. Here is only a few of the long list of the main wealth extractions built into our system which are charged to you every year; first income tax, then with what is left over we pay taxes on, property and rates, 10% GST on almost all goods and services, the above mentioned bank tax and of course, inflation. After this amount is taken from every citizen, are you happy with what the government does to make your life better in your local area or state? Can you name one thing they have made more efficient or cheaper? Maybe it is time Australia introduced a Department of Government efficiency.
After these expenses are taken from you. What are you left with, in your situation… other than a long working life.
The bank is not your friend, no bank. Nor are those who empower them. This is not financial advice, but next time you invest your money, maybe think about what it is doing for the future of this world.
What is inflation? It is nothing more than monetary manipulation. Taxation without representation. This we will cover soon.