Australia’s major banks are making a $200,000 profit on the average mortgage, but are still cutting operating costs by closing branches and removing ATMs, a new report has revealed.
Over 30 years, the big four banks would make profits of $200,800 on an average mortgage of $574,200, even after paying interest.
This added up to a 35 percent profit margin.
Greg Jericho, chief economist at the Australian Institute think tank, said borrowers were coming under pressure as major banks continued to dominate the home loan market.
“The Big Four are generating huge profits from mortgage loans that far exceed the level of risk the banks take on,” he said.
The Australia Institute report took the average mortgage size of $574,200 in the six months to July and calculated that the big four banks (Commonwealth, Westpac, ANZ and NAB) would typically make a profit of $9,130 in the first year.
This worked out to $761 per month or $176 per week.
The think tank analyzed the gains on owner-occupant loans when interest expense and the costs of bad and doubtful debt were deducted from the average interest charges on a mortgage, along with the expense margin or cost of grant the loan.
Australia’s major banks are making a $200,000 profit on the average mortgage as they continue to close branches and remove ATMs, a new report has revealed (file image)
Even with a lower variable rate of 5.79 percent on a $574,200 mortgage, the borrower would be charged $637,373 in interest over 30 years.
Total loan repayments over three decades would total $1,211,573 (covering principal and interest) and banks would set their variable rates in line with movements in the Reserve Bank of Australia’s cash rate.
The Australia Institute calculated a profit of $200,800 on this mortgage once banks subtracted the costs of providing the mortgage from interest charges.
Over the life of the average mortgage, that amounted to 35 percent of the principal.
“Australian banks are very profitable by global standards,” he 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.”
Commonwealth Bank, Australia’s largest property lender, made a net cash profit of $9.836 billion in the last financial year.
This also saw CEO Matt Comyn pay a compensation package of $8.977 million, with bonuses on top of his $2.5 million base salary.
Over 30 years, the big four banks would make profits of $200,800 on an average mortgage of $574,200, even after interest payments (file image)
The big four banks collectively made profits of $30.7 billion, after tax, in the 2023-24 financial year.
Despite this, they have continued to close branches and remove ATMs.
The number of bank branches in Australia has plummeted 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, falling from 13,814 to just 5,476, and Reserve Bank data shows that only 13 per cent of in-person transactions are now carried out in cash.
However, profitable banks are more likely to offer better deals because they can afford it.
“That suggests considerable room for negotiation,” the Australia Institute said.
On Thursday, NAB cut its variable rates by 40 basis points 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: ANZ was offering 6.14 per cent interest to refinance borrowers with a 20 per cent deposit and the Commonwealth Bank was charging 6.15 per cent interest.