Australia’s major banks are making a $200,000 profit on an average mortgage but still cutting operational costs by closing branches and taking away ATMs, a new report has revealed.
Over 30 years, the Big Four banks would be making $200,800 profit on an average $574,200 mortgage – even after interest payments.
This added up to a 35 per cent profit margin.
Greg Jericho, the chief economist at The Australian Institute think tank, said borrowers were being squeezed as the major banks continued to dominate the home lending market.
‘The Big Four are generating massive profits from home loans that far exceed the level of risk the banks undertake,’ he said.
The Australia Institute report took the average mortgage size of $574,200 in the six months to July and calculated the Big Four banks – Commonwealth, Westpac, ANZ and NAB – would be typically making a profit of $9,130 in the first year.
This worked out at $761 a month or $176 a week.
The think tank looked at profits on owner-occupier loans when interest expenses and bad and doubtful debt costs were deducted from average interest charges on a mortgage, along with the expense margin or the cost of providing the loan.
Australia’s major banks are making a $200,000 profit on an average mortgage as they continue to close branches and take away ATMs, a new report has revealed (stock image)
Even on a lower variable rate of 5.79 per cent on a $574,200 mortgage, a borrower would be charged $637,373 interest over 30 years.
Total loan repayments over three decades would add up to $1,211,573 – covering principal and interest – with the banks setting their variable rates in line with movements in the Reserve Bank of Australia cash rate.
The Australia Institute calculated $200,800 profit on this mortgage once the banks had subtracted the costs of providing the mortgage and the interest charges.
‘Our estimates are conservative as the fees banks charge on housing loans have not been included in these calculations,’ it said.
‘Nevertheless, the results presented above show that the burden of bank profits fall heavily on homebuyers.’
Over the life of an average mortgage, that added up to 35 per cent of the principal.
‘Australian banks are very profitable by world standards,’ it said.
‘The background to this study is the suggestion that the corporate sector in Australia has contributed to the cost-of-living crisis through price gouging.’
The Commonwealth Bank, Australia’s biggest home lender, made a $9.836billion net cash profit during the last financial year.
This also saw chief executive Matt Comyn paid a $8.977million remuneration package, with bonuses on top of his base salary of $2.5million.
Over 30 years, the Big Four banks would be making $200,800 profit on an average $574,200 mortgage – even after interest payments (stock image)
The Big Four banks collectively made a $30.7billion profit, after tax, in the 2023-24 financial year.
Despite this, they have continued to close branches and removed automatic teller machines.
The number of bank branches across Australia plunged by 41 per cent to 3,360 in June 2024, down from 5,694 in June 2017, Australian Prudential Regulation Authority data showed.
The number of ATMs has more than halved in just seven years, plunging to just 5,476 from 13,814, with Reserve Bank data showing just 13 per cent of in-person transactions are now done in cash.
Profitable banks, however, are more likely to offer better deals because they can afford to.
‘That suggests considerable scope to bargain,’ the Australia Institute said.
NAB on Thursday slashed its variable rates by 40 basis points, down to 6.44 per cent for owner-occupiers, even with a small deposit of just 5 per cent.
But this was far from the lowest rate with ANZ offering 6.14 per cent interest for refinancing borrowers with a 20 per cent deposit and the Commonwealth Bank charging 6.15 per cent interest.
