Earlier this week ANZ announced its half year earnings to March 2013 with a result of A$2.9b, a rise of about 7%. Cash earnings were up 8% for the period at A$3.2b. The numbers made compelling reading particularly given an increase in the interim dividend of 11% to 73 cents. But it gets better – return on equity was around 15% (return on average shareholders funds) and the Bank’s return on average assets is close to 1%pa. Most business owners would be more than pleased to achieve results like these, particularly such consistent year on year growth.
There is no doubt that the Australasian banks are in a strong position. Notwithstanding the fact that we need to have a healthy banking system, the banks have a huge hold upon their customer base (in terms of numbers and the spread of products). The aim to “cross sell” other products to existing customers continues unabated and the ANZ CEO noted that over the last six months there had been a 30% rise in the number of customers with 3 products or more with the Bank.
But more importantly, banks are allocators of capital and they tend to favour home lending over funding for business and particularly, start-up enterprises. Such capital decisions have long term impacts upon the health of our economy and as is well known, the level of housing stock continues to grow arguably at the expense of the “risk takers” – ie those that want to borrow funds to create wealth other than through property. There is little doubt that bank profitability will continue to improve as the rate of funding for traditional assets rises and as access to a larger share of the customers’ wallet occurs through a wider spread of products delivered increasingly via mobile applications on smartphones or tablets.
Bank depositors staring at low deposit rates must be wondering if there is better bang for their dollar in becoming a bank shareholder in a business where the dividend yield and business growth seems a one-way bet.