Key Points
- Commonwealth Bank has reported a record $10.2 billion profit for the financial year.
- The results were buoyed by the cash rate rises implemented by the Reserve Bank of Australia.
- The country's big four banks all reported a rise in profits in their last half-yearly reports.
Interest rate rises have left many Australians under financial pressure and , but are proving profitable for banks.
Commonwealth Bank (CBA) has posted a five per cent rise in profits, reaching a record $10.2 billion in full-year net profit after tax.
It comes after the country's 'big four' - CBA, Westpac, National Australia Bank (NAB) and ANZ - all reported a rise in profits in their last half-yearly reports.
As Australians grapple with , how exactly are big banks making record profits?
How much are banks profiting?
CBA's operating income was up 13 per cent to $27 billion as the bank's net interest margin - how much it earns on loans minus how much it pays on deposits - climbed 17 basis points higher because of the Reserve Bank's .
However, the margin dropped five basis points during the past six months, indicating profit margins for lenders are on the way down.
The proportion of customers whose mortgages were in arrears by more than 90 days increased slightly, but the share remained relatively low at 0.47 per cent.
The bank attributed borrowers' resilience to low unemployment rates and high savings levels, but a worsening in credit card and personal loan arrears reflects mounting
Troublesome and impaired assets increased sharply from $6.4 billion to $7.1 billion, driven primarily by loans to the construction and commercial property sectors.
The other big three banks have not yet reported their full-year results, but all recorded profit rises in their latest half-yearly earnings reports.
In May, Westpac reported its first-half profit rose 22 per cent to $4 billion.
NAB’s half-year report recorded a profit of just over $4 billion, an increase of 17 per cent.
ANZ’s earnings lifted 23 per cent to $3.8 billion in the same period
How do banks profit in the cost of living crisis?
According to the Commonwealth Bank's report, CBA profits were partly due to rising interest rates being paid by borrowers.
Tim Harcourt, chief economist at the University of Technology Sydney, said the dominance of the big four banks enables them to consistently make high profits and pass on the RBA's cash rate hikes.
"The banks sort of behave as a small pack. I think if you had more competition they probably couldn't all pass on the interest rates so easily," he said.
"But once one of them goes, the other three fall into line and that's always been the way in Australia because we have what we call the 'four pillar policy' where we only have four major banks."
Harcourt said the interest rate rises and successful investments were key factors in banks' profits.
"Banks have made pretty good investments in Australia, they're the main lenders for business finance," he said.
"If you go blue chips and red bricks ... you tend to quite well in Australia and the banks know that, and they've always been pretty safe.
What do other countries do to manage bank profits?
Australia is not the only country where banks are making high profits.
On Monday night, the Italian government approved a one-off 40 per cent tax on banks' profits from higher interest rates.
Bank of America estimates showed the measure could generate up to €3 billion ($5 billion) for the government.
Countries such as Spain and Hungary have already imposed windfall taxes on the sector and others may now follow suit.
Harcourt said he does not believe Australia would follow European countries with a profit tax on banks, but reforms to the corporate tax system could be more likely.
"A specific bank tax, I don't think so. But a reform to corporate taxes that would take into account banks, yes, I think that could happen."
