The Bank of International Settlements (BIS), the central bankers’ bank, has released its annual report overnight which highlights some big risks for the global economy going forward – particularly the lack of readiness in global markets to the looming withdrawal of monetary stimulus in the US.
But in discussing financial resilience in the wake of the global financial crisis, and the necessary increase in profitability to rebuild capital buffers, the BIS highlights that Australia’s banking sector is the most profitable, and arguably the strongest, in the developed world.
With pre-tax profits (as a percentage of total assets) of 1.28%, Australia leads the pack with the US coming in close behind at 1.24%. Canada takes the developed world bronze at 1.06% of assets.
But it’s when net interest margin, loan loss provisions and operating costs are all scored that the strength of the Australian banking is evident.
Australia has the third best net-interest margin, comes in fifth on loan loss provisions and third for operating costs.
Likewise Australia’s insurance sector stands out as the best performing in the developed world with both the non-life and life sectors showing strong premium growth with the the Australian non-life investment return almost 2% above the nearest rivals.
The Murray inquiry into Australia’s financial system will make its first report on July 15th which will make recommendations on how this strength should be balanced against the competitive needs of the economy.